Which product credits interest based on a stock index and includes a guaranteed minimum rate?

Which product credits interest based on a stock index and includes a guaranteed minimum rate?

• A. Fixed annuity
• B. Immediate annuity
• C. Deferred annuity
• D. Indexed annuities

Answer: (D)

Interest in indexed annuities is credited based on the performance of a stock index, but a guaranteed minimum rate ensures you still receive a floor of interest even if the index performs poorly. The insurer uses a crediting method—often a cap, a participation rate, or a spread—to translate index gains into credited interest, while the principal is protected from downside risk. This combination of upside potential tied to an index with a safety floor is what characterizes indexed annuities. Fixed annuities, by contrast, lock in a guaranteed fixed rate with no index linkage; immediate annuities convert a lump sum into a stream of payments right away; deferred annuities accumulate value but don’t inherently tie credited interest to an index with a guaranteed floor.

Interest in indexed annuities is credited based on the performance of a stock index, but a guaranteed minimum rate ensures you still receive a floor of interest even if the index performs poorly. The insurer uses a crediting method—often a cap, a participation rate, or a spread—to translate index gains into credited interest, while the principal is protected from downside risk. This combination of upside potential tied to an index with a safety floor is what characterizes indexed annuities. Fixed annuities, by contrast, lock in a guaranteed fixed rate with no index linkage; immediate annuities convert a lump sum into a stream of payments right away; deferred annuities accumulate value but don’t inherently tie credited interest to an index with a guaranteed floor.