Fixed Indexed Annuity Contracts: Key Features & Considerations

A fixed indexed annuity is a type of annuity contract that is offered by an insurance company that provides regular payments during your retirement. If you are considering getting involved in this type of investment, here are a few of the contract features that you should be aware of.

Participation Rate

The participation rate is the amount of change in a financial index that the insurance company will credit to your annuity account. For example, if the participation rate is 60 percent, and the financial index moves 10 percent, your account will be credited with six percent.

Caps and Floors

Your annuity contract might also have a cap or a floor. The cap is a maximum amount of interest that can be earned in your annuity, regardless of what the financial index does. On the opposite end of the spectrum, the floor is a minimum amount of interest that you can receive regardless of how poorly the financial index performs.

Fees

You should also understand how you will be charged by the insurance company. Sometimes, they take a margin out of the returns from your investments and other times, they charge you a specific fee.