What are the Contract Features of Equity-Indexed Annuities?

Equity-indexed annuities are one of the hottest insurance products these days. Equity indexed annuities offer you a market-driven investment with potentially attractive returns plus a guaranteed minimum return. Investing in equity-indexed annuity is a complicated issue because it contains several features that can affect your return as an investor. You should fully understand how an equity-indexed annuity computes its index-linked interest rate before you buy it. We suggest you to thoroughly evaluate each and every point before taking any decision.

Some common features that are used to compute an equity-indexed annuity’s interest rate are:-

Participation Rates:- It is very important feature of equity indexed annuities because it determines how much of the index's increase will be used to compute the index-linked interest rate.

• Indexing method can also have a dramatic impact on an equity-indexed annuity’s return. Some of them are given below:-

• Annual Reset :- It is also called Ratchet. This method credits index-linked interest based on any increase in index value from the beginning to the end of the year.

• Point-to-Point :- This method credits index-linked interest based on any increase in index value from the beginning to the end of the contracts term.

• High Water Mark :- This method credits index-linked interest based on any increase in index value from the index level at the beginning of the contracts term to the highest index value at various points during the contracts term.

Before you decide to buy an equity-indexed annuity, you should understand how each of these features works and what impact, together with other features, it may have on your annuity's potential return.