Indexed Annuity (Fixed Indexed Annuity)

An indexed annuity, often called a fixed indexed annuity, is a contract with an insurance company. You pay a lump sum or a series of payments, and the insurer credits interest based partly on how a market index performs. You are not invested in the index directly. In return for some protection against losses, the contract limits how much of the index's gain you receive.

The SEC's investor education office describes the most common limits. A participation rate sets what share of the index gain you get, and a rate cap sets the maximum you can earn in a period. Using the SEC's example, with a 75% participation rate and a 10% index gain, the annuity would be credited 7.5%. A cap would cut that further if it were lower. Insurers can often change these terms over time, and many contracts charge surrender charges if you withdraw money in the early years.

Indexed annuities are complex and usually pay sales commissions, which is why they draw complaints and lawsuits. Class actions and regulatory cases have alleged that insurers and agents sold these products to older buyers without disclosing surrender charges, overstated likely returns, or used illustrations and bonus features that were misleading. Some cases also involve unsuitable replacements, where an agent convinces a customer to swap an existing annuity for a new one and restart the surrender period.

If you believe you were misled, keep the contract, the illustration you were shown, and any marketing materials. Our guides on how to sue a company and types of class action lawsuits explain your options.