Indexed Annuity

Definition

• An annuity where income payments are based on an index such as the S&P 500, Dow Jones Industrial Average or NASDAQ Composite. Indexed annuities are generally regarded as safe investments, but most will have a guaranteed minimum return in order to protect the annuitant in the event that the index does poorly. Returns may be hindered by caps on the interest earned and/or fees.

Synonyms
stock index annuity, equity-indexed annuity

Related Terms and Acronyms

• Annual Crediting Cap — Definition,
  • The highest rate that can be credited to an equity-indexed annuity in a year.
• Annuity — Definition,
  • A regular periodic payment made by an insurance company to a policyholder for a specified period of time.
  • A financial instrument that disperses a number of payments over a set period of time.
• Deferred Annuity — Definition,
  • An annuity that makes payments to the annuitant at some date in future instead of immediately.
• Derivatives — Definition,
  • Financial contracts whose value is derived from the value of some underlying asset, rate or index. Derivatives are used as risk-management tools by governments and corporations to reduce exposure to risk, mainly related to fluctuations in foreign-exchange and interest rates. Derivative instruments include swaps, options, futures and forward contracts and are used by banks in two principal activities: sales/trading and asset/liability management.
• Index — Definition,
  • A table of yields or interest rates being paid on debt (such as Treasury notes or bank deposits) that is used to determine interest-rate changes.
• Inflation-Protected Annuity — Definition,
  • An annuity that guarantees a return equal to or above inflation.
• Maturity Guarantee — Definition,
  • A guarantee that after a certain date a contract, such as a life insurance policy or annuity, will have a minimum dollar value.
• Money Market Fund (MMF) — Acronym, Important,
  • Mutual funds that invest in short-term debts or securities.
• Mutual Fund — Definition,
  • A type of investment scheme that pools funds from multiple backers and invests them in securities such as stock or bonds.
• Participation Rate — Definition,
  • The rate at which changes in a stock index affect the profit credited to an annuity.
• Return — Definition,
  • Any increase in value or in income you earn on purchase or investment.
• Secondary Market — Definition,
  • A market where financial instruments such as stocks, bonds, options and futures are bought and sold to investors.
• Security — Definition,
  • Property designated as collateral.
  • A document stating ownership of a stock or bond.
  • A tradable financial implement that represents ownership, the rights to ownership or debt.
• Stock — Definition,
  • A share of the ownership of a company.
• Variable Annuity (VA) — Acronym,
  • An annuity where the payments received by the annuitant in the income phase of the annuity vary depending on how well the insurer's investment portfolio has performed.