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For example, if the index increases 10 percent in a year and you have a 50 percent participation rate, your annuity contract will get credited with 50 percent of the gain, or 5 percent.
For example; if your index annuity has a 75% participation rate and the index it tracks returns 10%–you would get a 7.5% return. Benefits of Index Annuities.
An indexed annuity is another type of annuity contract that blends characteristics of fixed and variable contracts. These products pay interest rates dictated by security indexes such as the S&P 500 .
An indexed annuity (the word equity previously tied to indexed annuities has been removed to help prevent the assumption of stock market investing being present in these products) in the United States is a type of tax-deferred annuity whose credited interest is linked to an equity index—typically the S&P 500 or international index.
A new category of deferred annuity, called the fixed indexed annuity (FIA) emerged in 1995 (originally called an Equity-Indexed Annuity). Fixed indexed annuities may have features of both fixed and variable deferred annuities. The insurance company typically guarantees a minimum return for EIA.
An indexed annuity tracks an index like the S&P 500 and offers a capped return based on the total returns of the index. Indexed annuities generally offer a minimum level of return as well.
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