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Fixed Index Annuity Cap Rate vs Monthly Averaging Jeff McLeod Reviews FIAsSummaryIn this 1:11 Annuities Explained video, Jeffrey Scott McLeod, LUTC, walks through the topic in plain English. Can you make money with a capped fixed index annuity? Well, each fifth, you write down where that index is on that day. Now you have a cap of 7%. If the index goes up by 10 and your cap is seven, you make seven. So, well, see, that's what monthly averaging does on an annual point-to-point basis, there is no gain. But with monthly averaging, you get an average of 7%. That's how monthly averaging with a cap works. Monthly averaging with a participation rate might pay you 70% of the gain and a margin spread or administrative fee might deduct 3% from that 10% gain and pay you seven Insurance education only—not securities advice. Key takeaways
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From the NAIC Buyer’s GuideIndex interest formulas may use features such as participation rates, cap rates, and spread/margin rates, so credited interest may reflect only part of an index change. If the index goes down over the period, zero interest is added for that feature and annuity value will not go down from that index change as long as you do not withdraw the money. Fixed indexed annuities are a type of fixed annuity that earn interest based on changes in a market index; the interest rate is guaranteed never to be less than zero, even if the market goes down. When you buy an indexed annuity, you are not investing directly in the market or the index. Common indexing methods described in NAIC materials include annual reset (ratcheting), high-water mark, and point-to-point. The indexing method is the approach used to measure the amount of change, if any, in the index. Sources: NAIC Buyer’s Guide for Deferred Annuities (2022); NAIC Buyer’s Guide for Fixed Deferred Annuities — Appendix for Equity-Indexed Annuities (2007 materials). The guides do not endorse any company or policy. State insurance departments: www.naic.org. Questions about fixed index annuities? Call or text 501-658-9882 · Book a time on the calendar Insurance-only disclaimer Jeffrey Scott McLeod, LUTC, is a licensed insurance producer. Content on this page is educational and discusses insurance products only—not securities, brokerage, or investment advisory services. Texas license 901162. Arkansas / National Producer Number 558629. Product availability, rates, and features vary by state and insurer. Read the NAIC Buyer’s Guide and the insurance contract before you buy. More videos |
Jeffrey Scott McLeod, LUTC — Licensed insurance producer. Texas license 901162. Arkansas / National Producer Number 558629. Insurance products only; not securities or investment advisory services.
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