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Equity Index Annuities

What are Equity-Indexed Annuities?

It is a fixed annuity, either immediate or deferred, that earns interest or provides benefits that are linked to an external equity reference or an equity index. The value of the index might be tied to a stock or other equity index. One of the most commonly used indices is Standard & Poor's 500 Composite Stock Price Index, which is an equity index. The value of any index varies from day to day and is not predictable.

When you buy an equity-indexed annuity, you own an insurance contract. You are not buying shares of any stock or index.

While immediate equity-indexed annuities may be available, this guide will focus on deferred equity-indexed annuities.

How Are They Different From Other Fixed Annuities?

It is different from other fixed annuities because of the way it credits interest to your annuity's value. Some fixed annuities only credit interest calculated at a rate set in the contract. Other fixed annuities also credit interest at rates set from time to time by the insurance company. Equity-indexed annuities credit interest using a formula based on change in the index to which the annuity is linked. The formula decides how the additional interest, if any, is calculated and credited. How much additional interest you get and when you get it depends on the features of your particular annuity.

The annuity, like other fixed annuities, also promises to pay a minimum interest rate. The rate that will be applied will not be less than this minimum guaranteed rate even if the index-linked interest rate is lower. The value of your annuity also will not drop below a guaranteed minimum.

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