State RegulationsMA specificDifficulty 2/5
How does an equity indexed annuity credit interest, as Massachusetts addresses these products under DOI Bulletin 98-17?
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Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
An equity indexed annuity blends fixed and index-linked features: interest credited is tied to an equity index's performance, but only through the contract's participation rate, cap, and related terms, and a guaranteed minimum keeps the principal protected even when the index declines. The Massachusetts Division of Insurance addressed equity indexed products in DOI Bulletin 98-17, keeping them within the insurance framework. Buyers accept limited upside participation in exchange for downside protection — the trade-off the contract's indexing terms define.
Why the other options are wrong
- A) A never-changing fixed rate describes a plain fixed annuity; the equity indexed product's crediting varies with the index, subject to contract terms under DOI Bulletin 98-17.
- B) Uncapped, unfloored index mirroring misstates the product; the contract's caps and participation limits define how much index performance is credited, and a guaranteed minimum applies.
- C) The owner does not buy stocks directly; the insurer credits interest by formula while holding the funds in its own portfolio.
Memory hook
Index-linked interest with guardrails: participation terms above, guaranteed minimum below.