Participation Rate
The percentage of an index's gain that a fixed-indexed annuity uses to calculate credited interest.
In a fixed-indexed annuity, the participation rate sets how much of the index's increase is counted when crediting interest. A 70% participation rate means a 10% index gain is treated as 7% before any cap is applied.
Participation rates work alongside caps and floors to define how the contract shares in index movement. They can change over time within contract limits set by the issuing insurance company.
Example
With an 80% participation rate and no cap, an index gain of 10% would credit 8% interest for that period.
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.
Cap Rate
The maximum interest a fixed-indexed annuity will credit for a given index period.
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.
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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.