Fixed Index Annuity

A. Participation rate, CAP, and Spread subtracts from any increase gained by the outside index ie: S&P 500

B. Participation rate = a set percentage multiplied by any percentage increase in the outside index ie: if the Participation rate is 70% and the outside index gained 10%, the annuitant would earned 7% (interest gained x Participation rate = return)

C. CAP = a set maximum percentage based on the performance of the outside index ie: if the CAP is 7% and the outside index gained 10%, the annuitant would earned 7% (any interest gained over 7% would not be included)

D. Spread = a percentage reduction between the index interest gained and the interest rate the consumer will be credit with ie: if the Spread is 3% and the index gained 10%, the policy would earn 7% (interest gained – spread = return)

E. Participation rates, CAPS, and Spreads are set by the insurance company at the beginning of a policy. Unless guaranteed in the policy, the insurance company can make adjustments on an annual basis.

F. Indexed annuities have a floor of zero: meaning that the worst case scenario is the annuitant would receive no interest. Also, the annuitant cannot lose any interest previously credited.

G. Once interest is credited it cannot be taken even if the measuring index produces a negative value ie: Investment of $100,000 with a 30% loss = $70,000. A 10% gain the following year would = $77,000. A Fixed Index Annuity Investment of $100,000 with a 30% loss = $100,000 (the 30% loss is replaced with a zero). A 10% gain the following year would = $110,000*.

H. There are more considerations such as dividends, MVA (Market Value Adjustment), Surrender charge, Free withdrawals, etc.

*Adjustment would be made in agreement with the Participation rate, CAPS, and/or Spreads.