How Index-Linked Annuity Interest Crediting WorksTip! With a variable annuity, you can decide to a limited extent how to invest your money. But it will have to be placed in what amounts to as an in-house mutual funds. One-Year Monthly Point-to-Point The monthly point-to-point index change is determined by subtracting the prior month's index value from current month's index value and dividing it by the prior month's index value. If this results in a positive monthly point-to-point index change and is not more than the declared cap, then it is used as the capped index change for that month. If it is more than the declared cap, then we use the declared cap as the capped index change for that month. A negative monthly point-to-point index change is not subject to a cap.
A "capped index change" for each month is captured over a 12-month period. The sum of the 12 monthly "capped index changes" will be the index credit rate on the index crediting date. The index credit rate is multiplied by the option's account value to determine the index credit. One-Year Annual Point-to-Point The annual point-to-point index change is determined by subtracting the prior year's index value from the current year's index value and dividing it by the prior year's index value. If this results in a positive annual point-to-point index change and is not more than the declared cap, then it is used as the index change for that year. If it is more than the declared cap, then we use the declared cap as the index change for that year.
A negative annual point-to-point index change is not subject to a cap. The index change will be the index credit rate on the index crediting date. The index credit rate is multiplied by the option's account value to determine the index credit. Participation Rate The participation
rate may very greatly from one annuity
to another and from time to time within
a particular annuity. Therefore, it is
important for you to know how your
annuity's participation rate works with
the indexing method. A high
participation rate may be offset by
other features, such as simple interest,
averaging, or a point-to-point indexing
method. On the other hand, an insurance
company may offset a
Tip! A fixed index annuity is not an equity, therefore that term has been eliminated. Indexed annuities are the new and improved terminology. lower
participation rate by also offering a
feature such as an annual reset indexing method. You can freely reprint this article as long as the author, bio, and live links are left intact.
Jeff McLeod is a fixed index-linked retirement income annuity specialist. To get a copy of the Buyer's Guide visit http://happyretiree.com/ http://HappyRetiree.com/
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