Uncapped Annuity Disclosure

A term you will hear more and more is the term “uncapped” when applied to fixed index annuities (FIAs).

“Uncapped” vs. “Capped”

A term you will hear more and more is the term “uncapped” when applied to fixed index annuities (FIAs). Here are some things you need to know.

First and foremost, “uncapped” does not mean unlimited. With any FIA, you always forego some of the upside interest credit in exchange for having no exposure to losses. Most people understand there is never something for nothing.

Fixed index annuities (FIAs) are in the class of fixed annuities that offer various methods of crediting interest from period to period based on movements of a market index. This period can be from year to year. FIAs are contracts for performance with insurance companies. They are not investments and do not participate in the stock or bond markets directly, but instead are interest gathering instruments. They are insurance products designed to meet long-term needs for retirement income, and they provide guarantees against the loss of principal and credited interest.

FIAs also offer the reassurance of a death benefit for your beneficiaries. In years when the market index is negative, a fixed index annuity reflects a zero interest rate for that period. That would be true no matter which type of crediting strategy is chosen, capped or uncapped. In years where the applicable index has a positive movement upward, the consumer may receive an interest rate that reflects a share of the index movement, reduced in some way by either a cap, a margin spread, or a participation rate. A combination may also occur.

Newer versions of fixed index annuities may offer lower volatility indexes that may feature “uncapped” index crediting strategies. The term uncapped does not mean unlimited. Typically a margin will apply, meaning the consumer does not receive the margin amount, but then may receive, as interest, the rest of the increase without a cap. Back casting of indexes is meant only to assist in understanding and gauging how interest might be credited. The consumer has a choice between fixed guaranteed level strategies, and those with the potential for higher levels of interest. As with all financial products and indexes, past performance is neither predictive nor a guarantee of future results.

Key point: No crediting method credits the “most” interest in all market scenarios. That’s why working with an experienced, licensed and qualified advisor willing to take the time to help you compare all strategies is beneficial.  Always remember that annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing company.  Thank  you.


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