Index annuities typically credit interest based on what and include which features?

• A. Fixed rate only with no caps
• B. A stock market index with a floor, cap, and participation rate
• C. A money market rate with guaranteed minimum return
• D. A guaranteed fixed rate with no floor

Answer: (B)

Index annuities credit interest based on the performance of a stock market index, not by directly investing in the index. The credited amount depends on three features: a participation rate, which determines how much of the index’s gain is used; a cap, which limits the maximum interest that can be credited in a period; and a floor, which guarantees a minimum credited interest even if the index declines. This combination—index-based growth with a guaranteed floor and limits via cap and participation rate—is what defines these products. The other descriptions describe fixed-rate or non-index products, which don’t capture this index-linked structure.