A fixed-indexed annuity (FIA) credits interest based on the performance of a market index, such as the S&P 500, without your money being directly invested in the market. A floor (often 0%) means a falling index does not reduce your principal, while features like caps and participation rates limit how much of the index's gain is credited.
Principal protection and any minimum guarantees are subject to the claims-paying ability of the issuing insurance company and are not FDIC insured. An FIA is designed for accumulation with downside protection, not to match the full return of the market.
Example
In a year the index rises 12% with a 6% cap, the contract is credited 6%; in a year the index falls 10%, the contract is credited 0% rather than losing value.
This definition is for general educational purposes only and is not financial, tax, or legal advice. Tim Hartle is an independent insurance professional. Annuity guarantees are subject to the claims-paying ability of the issuing insurance company and are not FDIC insured. Rules and product features vary by situation and by state. Please consult a qualified advisor about your own circumstances.