Crediting Interest With An Annual Reset One-Year Term Point-To-Point Crediting Method
September 16, 2020 by Wade Pfau
We start with considering how interest is credited to fixed index annuities, since this is the area that differs the most from variable annuities. Since FIAs are fixed annuities, crediting interest is the technical term for the returns generated by the contract value. As with variable annuities, it can be difficult to provide a standard explanation for how these returns are calculated on FIAs. Almost countless methods are used in practice and there is a trend to increase the complexity of the methods used. The discussion here cannot be comprehensive, but I will try to provide enough of a general understanding of the main options found in practice.
FIAs will generally provide options to either credit interest at a fixed rate, or as based on the performance of an external index. The amount of interest received depends on both the index and the crediting method chosen.