An Index Annuity is a type of Fixed Deferred Annuity. It guarantees a minimum return, while allowing index-linked gains up to a specified yearly cap or "limit".
The index-linked gains are usually based on a yearly basis. The most common crediting method is the "Annual Point to Point" method; this method credits the yearly gain (during the contract year) up to the specified cap. There are other Crediting Methods that calculate index movements on a monthly or even bi-annual basis. But it is important to remember that all index-linked gains are limited to the yearly or monthly cap; this is the trade off for receiving a guaranteed minimum return.
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The index-linked gains are usually based on a yearly basis. The most common crediting method is the "Annual Point to Point" method; this method credits the yearly gain (during the contract year) up to the specified cap. There are other Crediting Methods that calculate index movements on a monthly or even bi-annual basis. But it is important to remember that all index-linked gains are limited to the yearly or monthly cap; this is the trade off for receiving a guaranteed minimum return.