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Fixed Index
Annuity
A fixed index annuity is a fixed
annuity, that earns interest or provides benefits that are linked to an external equity reference or an
equity index. The value of the index might be tied to a stock or other equity index. The value of any
equity index varies from day to day and is not predictable. When you buy a fixed indexed annuity you own an
insurance contract. You are not buying shares of any stock or equity index.
What Are Participation Rates With No
Cap?
The participation rate decides how much of the increase in the
index will be used to calculate fixed indexlinked interest. For example, if the calculated change in
the index is 9% and the participation rate is 70%, the indexlinked interest rate for your fixrd annuity will
be 6.3% (9% x 70% = 6.3%). Some annuities guarantee that the participation rate will never be set lower than
a specified minimum or higher than a specified maximum.
WHAT IS THE IMPACT OF SOME OTHER FIXED INDEXED ANNUITY PRODUCT
FEATURES? Fixed Indexed
Annuities credit interest using a formula based on changes in the index to which the fixed indexed 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 fixed fixed indexed
annuity.
Cap in Interest Earned
While a cap limits the amount of interest you might
earn each year, fixed annuities with this feature may have other product features you want, such as
annual interest crediting or the ability to take partial withdrawals. Also, annuities that have a cap may have a
higher participation rate. As of , average annual caps are 4%.
Margin/Spread/Administrative
Fee
In some annuities, the indexlinked interest rate is
computed by subtracting a specific percentage from any calculated change in the index. This percentage,
sometimes referred to as the "margin", "spread", or "administrative fee," might be instead of, or in addition to, a
participation rate. For example, if the calculated change in the index is 10%, your annuity might specify
that 2.25% will be subtracted from the rate to determine the interest rate credited. In this example, the
rate would be 7.75% (10% 2.25% = 7.75%). In this example, the company subtracts the percentage only if the
change in the index produces a positive interest rate.
Averaging
Averaging at the beginning of a term protects you
from buying your fixed annuity at a high point, which would reduce the amount of interest you might
earn. Averaging at the end of the term protects you against severe declines in the index and losing indexlinked
interest as a result. On the other hand, averaging may reduce the amount of indexlinked interest you earn when the
index rises either near the start or at the end of the term.
Interest Compounding
It is important for you to know whether your fixed
index annuity pays compound or simple interest 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.
WHAT WILL IT COST ME TO TAKE MY MONEY OUT BEFORE THE END OF THE
TERM?
In addition to the information discussed in this
Buyer's Guide about surrender and withdrawal charges and free withdrawals, there are additional considerations for
fixedindexed annuities. Some annuities credit none of the indexlinked interest or only part of it if you
take out money before the end of the term. The percentage that is vested, or credited, generally increases as the
term comes closer to its end and is always 100% at the end of the term.
Monlthly Point to
Point
Change in index calculated for each month during the
index term. Each Monthly change is limited to the "cap rate" for positive changes, but not when the change is
negative. At the end of the index term, all monthly changes (positive and negative) are added. If the
result is positive, interest is added to the annuity. If the result is negative or zero, no interest (0%) is
added.
JEFFREY SCOTT McLEOD NATIONAL LICENSED INSURANCE SALES PRODUCER #558629
ARKANSAS INSURANCE PRODUCER LICENSE #558629
McLEOD AGENCY, INC. ARKANSAS INSURANCE LICENSE #1651277 *National Association
Of Insurance Commissioners
