Participation rate

Indexed annuities credit a level of interest to the contract owner, and this level of credited interest is indexed or linked to the performance of equity markets. Participation rates determine the final level of interest that is credited to the owner of a fixed indexed annuity. Participation rates are applied to the various crediting methods and result in a final level of credited interest that is less than the crediting method result. For example, assume that a given crediting method results in an 8 percent interest credit. If the participation rate is 70 percent, then the final level of interest credited to the contract owner is 5.6 percent (70 percent of 8 percent). Participation rates vary greatly across different indexed annuities. Participation rates can also change frequently or be guaranteed for a period of time. Indexed annuity owners need to pay attention to their participation rates and understand when and how frequently the rates change as their return is ultimately determined by the participation rate—Read more at Annuity Digest. Fechtel, Brian, CFA. “Participation Rate.” 2 October 2019