How Indexed Annuity Participation Rates Work
Monday, April 18th, 2011
Indexed Annuities Annual Point to Point
The monthly point-to-point indexed annuity change is determined by subtracting the previous month’s fixed index annuity value from current month’s fixed index annuity value and dividing it by the prior month’s fixed index annuity value.
If this results in a positive monthly point-to-point index change and is not more than the declared cap, then it is used as the capped index change for that month. If it is more than the declared cap, then we use the declared rate cap as the capped index change for that month.
A negative monthly point-to-point index change is not subject to a cap. A “capped index change” for each month is captured over a 12-month period. The sum of the 12 monthly “capped index changes” will be the indexed credit rate on the index crediting date. The index credit rate is multiplied by the option’s account value to determine the index credit.
One-Year Annual Point-to-Point
The annual point-to-point index change is determined by subtracting the prior year’s index value from the current year’s index value and dividing it by the prior year’s index value. If this results in a positive annual point-to-point index change and is not more than the declared cap, then it is used as the index change for that year. If it is more than the declared cap, then we use the declared cap as the index change for that year.
A negative annual point-to-point index change is not subject to a cap. The index change will be the index credit rate on the index crediting date. The index credit rate is multiplied by the option’s account value to determine the index credit.
Fixed Indexed Annuity Participation Rates
The participation rate may very greatly from one fixed indexed annuity to another and from time to time within a particular fixed indexed annuity. Therefore, it is important for you to know how your index annuity’s participation rate works with the indexing method. A high participation rate may be offset by other features, such as simple interest, daily averaging, or a point-to-point indexing method. On the other hand, an indexed annuity company may offset a lower participation rate by also offering a feature such as an annual reset indexing method.
Annual Point to Point Indexed Annuities
The index-linked interest, if any, is based on the difference between the index value at the end of the one year term and the index value at the start of the one year term. Interest is added to your fixed annuity at the end of the one year annual reset term.