Fixed-Indexed Annuities — A Hypothetical Example
The following example will illustrate how the various methods of computing the amount credited to a contract might operate.
Assumptions:
Initial annuity Investment: $50,000
Date of annuity Investment: May 30th, Year 0
- Market Index, May 30th, Year 0: 1,422
- Market Index, May 30th, Year 1: 1,600
- Market Index, May 30th, Year 2: 1,300
- Market Index, May 30th, Year 3: 1,940
- Market Index, May 30th, Year 4: 2,220
- Market Index, May 30th, Year 5: 1,700
| Example 1: Annual Reset with 100 % Participation and 16% Cap Rate | ||
| End of | Computation | Contract Value |
| Year 1: | 1,600-1,422 = 178; 178/1,422 = 12.5% gain; | $50,000 x 1.125 = $56,250 |
| Year 2: | 1,300-1,600 = negative number = market loss; | $56,250 (no drop in value) |
| Year 3: | 1,940-1,300 = 640; 640/1,300 = 49.2% gain; | $56,250 x 1.16 = $65,250 |
| Year 4: | 2,220-1,940 = 280; 280/1940 = 14.4% gain; | $65,250 x 1.144 = $74,646 |
| Year 5: | 1,700-2,220 = negative number = market loss; | $65,250 x 1.144 = $74,646 |
| Example 2: Point-To-Point with 90% Participation Rate and No Cap Rate | ||
| End of | Computation | Contract Value |
| Year 5: | 1,700 (end) — (1,422 (beginning) = 278 278/1,422 = 19.5% gain 19.5% x 90% x $50,000 = $8,775 $50,000 + $8,775 = $58,775 |
$58,775 |
| Example 3: Annual High-Water Mark w/ Look-Back, 100% Participation and No Cap | ||
| End of | Computation | Contract Value |
| Year 5: | 2,220 (peak) — (1,422 (beginning) = 798 798/1,422=56.1% $50,000 x 1.561% = $78,050 |
$78,050 |
| Summary | Annual reset, 100% participation, 16% cap rate: | $74,646 | Point-to-point, 90% participation, no cap rate: | $58,775 | Annual high-water mark, 100% participation, no cap rate: | $78,050 |
The results shown exclude any deductions for expenses.
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