An equity-indexed annuity is different from other
fixed annuities because of the way it credits interest to your
annuity's value. Most fixed annuities only credit interest
calculated at a rate set in the contract. Equity-indexed annuities
credit interest using a formula based on changes 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.
Your equity-indexed 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. For
example, many single premium annuity contracts guarantee the minimum
value will never be less than 90 percent (100 percent in some
contracts) of the premium paid, plus at least 3% in annual interest
(less any partial withdrawals). The insurance company will adjust
the value of the annuity at the end of each term to reflect any
index increases.
