Understanding Equity Indexed Annuity Contract Features

Equity indexed annuities are a type of investment that can provide you with a regular source of income during your retirement years. If you are thinking about investing in this type of annuity, you will want to make sure that you understand how they work. Here are some of the contract features of equity indexed annuities.

Equity Indexed Annuities

You are going to be working with an annuity provider to purchase this product. You will be able to pay them over a longer time with regular payments or you can make one large payment to the company. Part of the money that you give them is going to be invested. The amount of return that you earn on your annuity will be tied to a financial index, such as the S&P 500. If the S&P 500 is doing well, your annuity is also going to do well. The performance of the index is going to determine how much money you can make when you start receiving payments.

Participation Rates

Many equity indexed annuities have what is referred to as a participation rate in their contract. This means that you are not going to receive the full amount of return when the index moves. The participation rate shows what percentage of movement you are going to be able to take advantage of in the market. For example, let's say that you have a 70 percent participation rate. If the financial index increases by 10 percent, you are going to receive a 7 percent increase in your account. If your equity inde