Cap Rate
The maximum interest a fixed-indexed annuity will credit for a given index period.
A cap rate is the ceiling on interest credited in a fixed-indexed annuity for a crediting period. If the cap is 6% and the index rises 12%, the credited interest is limited to 6%; if the index rises 4%, you receive 4%.
Caps are one of the trade-offs for the contract's downside protection. They are set by the issuing insurance company and may change over time within contract limits.
Example
A contract with a 6% annual cap credits 6% in a strong market year and 0% (not a loss) in a year the index declines.
This definition is for general educational purposes only and is not financial, tax, or legal advice. Tim Hartle is an independent insurance professional. Annuity guarantees are subject to the claims-paying ability of the issuing insurance company and are not FDIC insured. Rules and product features vary by situation and by state. Please consult a qualified advisor about your own circumstances.
Related Terms
Fixed-Indexed Annuity
An annuity that credits interest tied to a market index, with a floor that protects against index losses.
Participation Rate
The percentage of an index's gain that a fixed-indexed annuity uses to calculate credited interest.
Floor
The minimum interest a fixed-indexed annuity will credit, protecting against index losses.
Index Crediting Method
The formula a fixed-indexed annuity uses to measure index change and calculate interest.
Go Deeper
Want This Explained for Your Own Plan?
Schedule a free, no-pressure Retirement Income Review with Tim, or call (727) 692-5866.
Annuities are insurance contracts. Guarantees, including guaranteed lifetime income benefits where available, are subject to the claims-paying ability of the issuing insurance company. Product features, fees, withdrawal restrictions, and surrender charges vary by contract.