What does the Annual Reset method do in index annuities?

• A. Compares index value at contract end to contract start
• B. Compares index value at end of year to the beginning of year
• C. Uses the highest index value since contract inception
• D. Uses daily index value changes

Answer: (B)

Annual reset credits interest based on how much the index rises during each year, then starts the next year from that new level. In practice, the base value for measuring a year is the index value at the beginning of the year, and the credit for that year uses the ending value minus that starting value, possibly subject to a participation rate, cap, or floor. At the end of the year, the base is reset to the ending index value, so the next year’s calculation starts fresh from there. This means each year’s credited interest reflects that year’s performance only, not the entire contract’s history. The other methods described—comparing the contract as a whole from start to end, using the highest value achieved since inception, or tallying daily changes—are different indexing approaches, not the annual reset approach.