Annuities✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
How is interest credited on an equity-indexed annuity?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
An equity-indexed annuity credits interest by reference to the performance of a market index — most commonly the S&P 500 — while typically guaranteeing a minimum return, such as a floor of 0 percent. The owner does not own index shares; the insurer uses options or other instruments to deliver a capped or participation-based portion of index gains. This positions indexed annuities between fixed and variable products.
Why the other options are wrong
- B) General-account-based fixed annuities credit a stated guaranteed and current rate; index linkage is what defines an equity-indexed annuity.
- C) The indexed annuity owner holds no direct stock positions; index performance is a crediting benchmark only.
- D) Indexed annuities generally include a minimum rate guarantee, unlike a pure market-linked credit with no floor.
Memory hook
Indexed annuity = ride the S&P wave with a guaranteed no-sink floor.