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Return To Annuity Article Archive   Search the Article Archives How Index-Linked Annuity Interest Crediting Works By Jeffrey Scott McLeod One-Year Monthly Point-to-Point The monthly point-to-point index change is determined by subtracting the prior months index value from current months index value and dividing it by the prior months index value. If this results in a positive monthly point-to-point index change and is not more than the declared cap, then it is used as the capped index change for that month. If it is more than the declared cap, then we use the declared cap as the capped index change for that month. A negative monthly point-to-point index change is not subject to a cap. A 'capped index change' for each month is captured over a 12-month period. The sum of the 12 monthly 'capped index changes' will be the index credit rate on the index crediting date. The index credit rate is multiplied by the options account value to determine the index credit. One-Year Annual Point-to-Point The annual point-to-point index change is determined by subtracting the prior years index value from the current years index value and dividing it by the prior years index value. If this results in a positive annual point-to-point index change and is not more than the declared cap, then it is used as the index change for that year. If it is more than the declared cap, then we use the declared cap as the index change for that year. A negative annual point-to-point index change is not subject to a cap. The index change will be the index credit rate on the index crediting date. The index credit rate is multiplied by the options account value to determine the index credit. Participation Rate The participation rate may very greatly from one annuity to another and from time to time within a particular annuity. Therefore, it is important for you to know how your annuitys participation rate works with the indexing method. A high participation rate may be offset by other features, such as simple interest, averaging, or a point-to-point indexing method. On the other hand, an insurance company may offset a lower participation rate by also offering a feature such as an annual reset indexing method. Annual Point-to-Point The index-linked interest, if any, is based on the difference between the index value at the end of the one year term and the index value at the start of the one year term. Interest is added to your annuity at the end of the one year annual reset term. Jeff McLeod is a fixed index-linked retirement income annuity specialist. To get a copy of the Buyers Guide visit http://HappyRetiree.com/ You can freely reprint this article as long as the author, bio, and live links are left intact. About the Author: Jeff McLeod is a retirement income fixed index-linked annuity specialist. To get a copy of the Buyers Guide visit http://HappyRetiree.com/

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