Equity Index Annuity Floor

A buffer and a floor are two options that limit exposure to market loss.

Equity index annuity floor.

Opposite of the buffer option. In most fixed indexed annuity contracts the floor is 0. According to finra state insurance laws also require fixed index annuities to pay a guaranteed minimum rate of 1 3 on 87 5 of the paid premium dollars. In this case you would be exposed to the percentage loss up to the floor amount but you are protected against any loss after this percentage.

The most common floor is 0. Fixed indexed annuities credit interest in part based on changes to a market index such as the standard poor s 500. Percentage of downside protection typically 10 20 or 30 percent. A 0 floor assures that even if the index decreases in value the index linked interest that you earn will be zero and not negative.

Key takeaways an indexed annuity pays a rate of interest based on a particular market index such as the s. Floor on equity index linked interest the floor is the minimum index linked interest rate you will earn. A 0 floor assures that even if the index decreases in value the index linked interest that you earn will be zero and not negative. To recap the floor is the minimum index linked interest rate you would earn.

It guarantees a minimum interest rate if held to the end of the surrender term and protects against a loss of principal. Equity indexed annuities may appeal to moderately. Wish to participate in the equity markets. An indexed annuity 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.

The returns may be higher than fixed instruments such as certificates of deposit money market accounts and bonds but not. For the 1 year illustration chart the s p 500 index returned 4 38 including dividends while the annuity s credited rate is calculated to be 0. Indexed annuities are sometimes referred to as equity indexed or fixed indexed annuities. The most common floor is 0.

This cross between an indexed annuity and a variable annuity has gained attention in the investment worldand not all of it positive. Each month s return is capped at 1 5. A floor of 0 is applied to the annual total. An equity index annuity is a contract with an insurance or annuity company.

Floor on equity index linked interest the floor is the minimum index linked interest rate you will earn. A fixed indexed annuity is not a registered security or stock market investment and does not directly participate in any stock or equity investments or index.