HOME GET A QUOTE INSURANCE PRODUCTS REFER A FRIEND ABOUT US RESOURCES TESTIMONIALS CONTACT US  
             Helping you Plan your Retirement

(877) 769-ANNUITY

 
 
  KNOWLEDGE CENTER
  Frequent Questions
  Insurance Videos
  Glossary
  News & Articles
   
     
  How Does this Translate Into Interest Crediting  
 

Interest earnings are credited using an index crediting strategy. The three most common index crediting formulas are:

• The Annual Monthly Average Method is linked to the performance of an index over a 12-month period, then averages the movement in order to determine the annual percentage change. The value may be adjusted by an annual cap or annual spread, if any.

• The Annual Point-to-Point Method is linked to the performance of the index and the measuring of the annual percentage change between "starting" and "ending" points. This value may be adjusted by an annual cap or participation rate.

• The Annual Monthly Cap Method sums both the monthly index increases (up to the Interest Rate Cap) and monthly index decreases in the index to which it is linked over a 12 month period to determine the annual percentage change. If the sum of 12 monthly changes is positive, that’s the interest credit.

Regardless of which index crediting strategy is used, most share a similar "interest calculation".

For example, a typical process is outlined here::

1. The index movement is measured over a specific index term (usually one year).

2. The annual percentage change, if any, is calculated.

3. The annual percentage change is adjusted by the interest rate cap, participation rate, or annual spread.

5. If the resulting interest calculation is negative, the interest credit is zero.

Here is an example using a $100,000 initial deposit:

HYPOTHETICAL EXAMPLE #1

Index Value at "Starting Point" 1,200

Index Value at "Ending Point" 1,380

Annual Percentage Gain Equals 15%

Contract Value at "Starting Point" $100,000

Adjustment 8% Interest Rate Cap

Amount Credited to Contract Values $8,000 = $100,000 x 8%

Contract Value at "Ending Point" $108,000

Index Value at "Reset" 1,380

 

Now what if the Market suffers a loss?

In the prior example, you saw how interest credits are credited to contract values following an increase in the index. Well, what would happen to contract values if the index suffered a loss? The answer is simple. Contractholders would be credited with 0% interest (protecting them against loss to their principal); the "starting value" of the index would be reset; and a new Index Term would begin.

Let’s use the same hypothetical example to see how this works. Again, let’s assume an initial premium of $100,000 and use the Annual Point-to-Point index crediting formula.

HYPOTHETICAL EXAMPLE #2
Index Value at "Starting Point" 1,200
Index Value at "Ending Point" 980
Annual Percentage Change Equals -10%
Contract Value at "Starting Point" $100,000
Adjustment 0% Interest minimum allowed
Amount Credited to Contract Values $0 = $100,000 x 0%
Contract Value at "Ending Point" $100,000*
Index Value at "Reset" 980

*Despite a loss in the index of 10 percent, there is no loss in contract value!

 

If your ready to learn more and how you can get into an annuity, please fill out our Annuity form and we will have A representative contact you soon.  Continue to form

 
     
 
© Copyright 2009 BuyMyPolicyOnline.com. All Rights Reserved. Home | Insurance Products | About Us | Resources | Testimonials | Contact Us | Privacy| Sitemap
Click To Verify
Protected by Copyscape Duplicate Content Detection Tool