Equity-indexed annuity
Open-knowledge reference entry
An indexed annuity (the word equity previously tied to indexed annuities has been removed to help prevent the assumption of stock market investing being present in these products) in the United States is a type of tax-deferred annuity whose credited interest is linked to an equity index—typically the S&P 500 or international index. It guarantees a minimum interest rate (typically between 1% and 3%) if held to the end of the surrender term and protects against a loss of principal. An equity index annuity is a contract with an insurance or annuity company. The returns may be higher than fixed instruments such as certificates of deposit (CDs), money market accounts, and bonds but not as high as market returns. Equity Index Annuities are insured by each state's Guarantee Fund; coverage is not as strong as the insurance provided by the FDIC. For example, in California the fund will cover "80%, not to exceed $250,000." The guarantees in the contract are backed by the relative strength of the insurer.
The contracts may be suitable for a portion of the asset portfolio for those who want to avoid risk and are in retirement or nearing retirement age. The objective of purchasing an equity index annuity is to realize greater gains than those provided by CDs, money markets or bonds, while still protecting principal. The long term ability of Equity Index Annuities to beat the returns of other fixed instruments is a matter of debate.
Indexed annuities represent about 25.3% of all fixed annuity sales in 2020 according to the My Annuity Store, Inc..
Equity-indexed annuities may also be referred to as fixed indexed annuities or simple indexed annuities.
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