Annuities✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
In an equity-indexed annuity, which feature limits the maximum amount of index gain credited to the contract in a single period?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
An equity-indexed annuity credits interest based on the performance of a stock index, and the cap sets the maximum percentage of index gain that will be credited in a given period. The participation rate is the percentage of the index's gain that is credited, while the floor guarantees a minimum return, often zero percent, even if the index declines. The insurer's cost of providing the downside floor is offset by these limits on the upside, such as the cap.
Why the other options are wrong
- B) The participation rate is the percentage of the index gain credited, such as 80 percent, not the maximum amount credited.
- C) The floor is the guaranteed minimum return that protects against index losses; it does not limit gains.
- D) A separate account is the funding vehicle of a variable annuity, not a crediting feature of an equity-indexed annuity.
Memory hook
Cap = lid on the index gain you keep; participation rate = your share of the gain; floor = the safety net.