Fixed Index Annuity Contract features explained...
Indexing method - used to measure the amount of index change. These methods include: annual reset (ratcheting), high watermark, high water with look-back, short-term point-to-point, long-term point-to-point, monthly average, daily average, and monthly cap.
Participation rate – The rate which decides the percentage of an increase in an index used to calculate index-linked interest. Say the index change is 10% and the participation rate is 70%. Thus the credited interest rate for your money would be 7% (0.1 x 0.7 = 0.07).Cap – An upper limit, or cap, preset on the index-linked interest rate. This is the maximum rate of interest the annuity will earn; note not all annuities have a cap rate.
Floor – The minimum index-linked interest rate that you will earn. The most common floor is 0%. It assures that even if the index decreases in value, the credited interest that you earn will be zero and not negative. Not all fixed index annuities have a stated floor, but they all have a guaranteed minimum value.
Asset fees – Also known as the margin or spread, fees are subtracted from the linked index gains. If an index grew 7% and the fees were 1%, the credited interest would be 6%.
Interest compounding – It’s important to know whether your annuity pays a compound or simple interest rate during a term. While you may earn less from an annuity that pays simple interest, it may have other features you want, such as a higher participation rate.
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