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An Equity Indexed Annuity (EIA) is a deferred annuity that earns interest on the upward movement of an equity index (most commonly the Standard and Poor’s 500 index), but still maintains a minimum guaranteed interest rate offered by a fixed annuity.

How the EIA Works
Insurers can use a portion of EIA deposits to purchase investments whose performance is closely tied to the performance of indices like the Standard and Poor’s 500 Composite Stock Price Index, the S&P Midcap or the Russell 2000. If the index moves upward, the interest credited to an EIA may be greater than the interest rate available on traditional fixed annuities. If the index moves downward, there is a minimum guaranteed rate that your interest rate cannot go below.

Calculating Interest
EIA’s come in many different shapes and sizes and offer a number of methods to calculate the interest credited. The one crediting method, which may produce the best result, depends on how the index will change, so it is not possible to know ahead of time which method will credit the highest interest rate.

Risk Factor
From a risk standpoint, an EIA is positioned between a traditional fixed annuity and a variable annuity. Buying an EIA is not the same as making an investment in the stock market. EIA’s, therefore, do not encounter the same potential for gain or loss as investing directly in the market. It does, however, offer the potential to receive an interest rate that is more competitive than with a traditional fixed annuity. EIA values are backed by the insurance company and provide a minimum guaranteed interest rate.

Typical Product Features
  • Free Withdrawals
  • Confinement Waiver
  • Death Benefit Guarantee
  • Guaranteed Interest Rate
  • Surrender/Withdrawal Charges
  • Cap Rate
  • Participation Rate


Last Updated: 9/23/2012 10:05:00 PM