Investor Testing Report on 

Registered Index-Linked 

Annuities

KATHERINE CARMAN, Senior Financial Economist, Office of the Investor Advocate, Securities and 

Exchange Commission, 100 F Street, NE, Washington, DC 20549, carmanka@sec.gov, ORCID ID: 

0000-0002-5760-4441

ALYCIA CHIN, Senior Financial Economist, Office of the Investor Advocate, Securities and Exchange 

Commission, 100 F Street, NE, Washington, DC 20549, readlinga@sec.gov, ORCID ID: 0000-0002-

9570-0549

JONATHAN COOK, Financial Economist, Office of the Investor Advocate, Securities and Exchange 

Commission, 100 F Street, NE, Washington, DC 20549, cookjon@sec.gov, ORCID ID: 0000-0001-

6067-0960 

STEVEN B. NASH, Data Analyst, NORC at the University of Chicago, 4350 East-West Hwy 8th Floor, 

Bethesda, MD 20814, nashst@sec.gov 

BRIAN SCHOLL (Principal Investigator; Corresponding Author), Chief Economist, Office of the Investor 

Advocate, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549, 

schollb@sec.gov, ORCID ID: 0000-0001-5088-6952

DAVID B. ZIMMERMAN, Financial Economist, Office of the Investor Advocate, Securities and Exchange 

Commission, 100 F Street, NE, Washington, DC 20549, zimmermanda@sec.gov, ORCID ID: 0000-

0001-5784-2733 

OIAD Working Paper 2023-01 September 2023
Investor Testing Report on Registered Index-Linked Annuities | 1

ACKNOWLEDGEMENTS

We thank staff at Fors Marsh for helping us conduct this research, particularly Alexsandra Galanis, Emily 

Appel-Newby, Daniel Greenberg, Ashley Simpkins, Susan Ullrich, and Hunter Peebles. We also thank staff of 

the SEC, particularly members of the Office of the Investor Advocate (OIAD) and Division of Investment 

Management, for helpful comments on our research design and background on legal requirements. Steven Nash 

is an on-site institutional contractor to OIAD.

On December 29, 2022, Congress enacted the Consolidated Appropriations Act, 2023 (Appropriations Act).1 In the Appropriations Act, Congress 

indicated that “the Commission shall prepare and finalize, new or amended rules, as appropriate, to establish a new form . . . on which an issuer of 

a registered index-linked annuity may register that registered index-linked annuity, subject to conditions the Commission determines appropriate . 

. . with respect to the registered index-linked annuity.”2 In addition, Congress indicated that, in designing the form, “the Commission shall . . . 

engage in investor testing; and incorporate the results of the testing required . . . in the design of the form, with the goal of ensuring that key 

information is conveyed in terms that a purchaser is able to understand.”3 The investor testing discussed in this report was conducted in response

to the Appropriations Act. 

DISCLAIMER: The report was prepared by staff of the Office of the Investor Advocate at the U.S. Securities and Exchange Commission (SEC) 

but does not necessarily reflect the views of the Commission, the Commissioners, or other members of the staff. The results of simulation 

analysis contained in this report should not be construed to predict future performance of any registered index-linked annuities (RILA) product or 

promote any RILA.

1 See U.S. House of Representatives, Consolidated Appropriations Act, H.R. 2617, Pub. Law No: 117-328 (Dec. 29, 2022), available at

https://www.congress.gov/bill/117th-congress/house-bill/2617. 2 See id. 3 See id.
Investor Testing Report on Registered Index-Linked Annuities | 2

Table of Contents

1. Introduction and Executive Summary .........................................................................................4

2. RILAs: Structure of Contracts and Investment Options..............................................................6

Indexes ........................................................................................................................................ 6

Investment Terms........................................................................................................................ 7

Value Calculations ...................................................................................................................... 7

Insurance Features....................................................................................................................... 7

Charges, Penalties, and Fees....................................................................................................... 9

3. Overview of the RILA Market and Simulated Performance During Historical Periods...........10

Data ........................................................................................................................................... 11

Methodology ............................................................................................................................. 11

Limitations..............................................................................................................................12

Descriptive Statistics on Overall RILA Market ........................................................................ 13

RILA Indexes, Investment Terms, and Insurance Features...................................................... 13

Illustrative Examples Comparing Investment Option Value to an Index ................................. 17

RILA Performance During Various Market Conditions........................................................... 19

Comparing RILA Features........................................................................................................ 22

Variations in Insurance Features and Simulated Returns.......................................................22

Variations in Term Length and Simulated Returns................................................................26

Summary Performance Statistics .............................................................................................. 29

Risk............................................................................................................................................ 30

Summary and Discussion.......................................................................................................... 32

4. Review of RILA Marketing.......................................................................................................34

5. Qualitative Testing.....................................................................................................................35

Methods..................................................................................................................................... 35

Limitations..............................................................................................................................36

Results From Round 1............................................................................................................... 36

Results From Round 2............................................................................................................... 37

Summary of Qualitative Testing ............................................................................................... 39

6. Quantitative Testing...................................................................................................................41

Methods..................................................................................................................................... 41

Sample ....................................................................................................................................41

Study Design and Overview...................................................................................................43
Investor Testing Report on Registered Index-Linked Annuities | 3

Comprehension Measures.......................................................................................................44

Moderating Characteristics.....................................................................................................45

Limitations..............................................................................................................................45

Results ....................................................................................................................................46

Testing Impacts.......................................................................................................................47

Subgroup Analysis..................................................................................................................52

Time........................................................................................................................................53

Summary of Quantitative Testing ............................................................................................. 55

7. Conclusions................................................................................................................................57

Summary of Methods................................................................................................................ 57

Summary of Findings and Discussion....................................................................................... 58

Implications of the Research: The Economics of RILAs.......................................................... 60

Implications of the Research: Considerations for Disclosure Design....................................... 62

Concluding Thoughts................................................................................................................ 63

References......................................................................................................................................64

Appendix A. Supplementary Analyses on the RILA Market ........................................................67

Appendix B. Materials Used in Round 1 of Qualitative Testing...................................................68

KIT Disclosure .......................................................................................................................... 68

Scenario Text............................................................................................................................. 70

Appendix C. Materials Used in Round 2 of Qualitative Testing...................................................71

Introduction to RILAs............................................................................................................... 71

KIT Document Tested: Important Information You Should Consider About the Contract ..... 72

Graphics and Table Shown in Testing ...................................................................................... 73

Scenario Text............................................................................................................................. 76

Appendix D. Materials Used in Quantitative Testing....................................................................77

Introductions Presented in Quantitative Testing ....................................................................... 77

Introducing Participants to Key Terminology........................................................................77

Marketing Materials That Could Be Presented to Consumers When Shopping for a RILA..77

Plain Language Introduction to Factors That Could Influence Participants’ Decision to 

Purchase a RILA.....................................................................................................................77

Versions of the KIT That Were Shown in Quantitative Testing............................................... 78
Investor Testing Report on Registered Index-Linked Annuities | 4

1. Introduction and Executive Summary

Registered index-linked annuity (RILAs) are retirement investment products geared 

towards retail investors that have at times been suggested to offer higher growth potential than 

fixed-income instruments, combined with a degree of risk protection. Entering into a RILA 

agreement means that a retirement-oriented retail investor will have an annuity contract with an 

insurance company. Investors generally purchase RILA products through a financial 

professional. Despite the retail-focus, RILAs are arguably complex products that may be difficult 

for a retail investor to evaluate or understand and that typically require investors to make 

complex ongoing financial decisions, thereby raising interest in investor protection concerns. 

The benefits of investments in RILAs depend on exactly how these contracts are constructed and 

used, with investors having to choose (among other things): an insurance provider, the 

underlying linked index, the insurance features that may limit some risks and potential upsides,

and the “investment term” – the period over which investment returns are calculated. These 

factors significantly affect the degree to which a RILA product may be an appropriate investment 

for a particular retail investor. RILAs typically have implicit fees and can also be associated 

with significant charges and penalties, including those assessed for withdrawals from the 

contract, withdrawals that occur in the middle of an investment term, and withdrawals before age 

591⁄2 (due to tax penalties).

In 2022, Congress directed the U.S. Securities and Exchange Commission (SEC) to 

“establish a new form . . . [to] register[] index-linked annuity” products.

1

 Congress mandated 

that the form must be designed “in a manner to ensure that a purchaser using the form receives 

the information necessary to make knowledgeable decisions, taking into account (1) the 

availability of information; (2) the knowledge and sophistication of that class of purchasers; 

(3) the complexity of the RILA; and (4) any other factor the Commission determines 

appropriate.” 2 Furthermore, “the Commission shall . . . engage in investor testing; and 

incorporate the results of the testing required . . . in the design of the form, with the goal of 

ensuring that key information is conveyed in terms that a purchaser is able to understand.”3 

These activities were to be completed so that “not later than 18 months after the date of 

enactment of [the] Act, the Commission shall prepare and finalize[] new or amended rules, as 

appropriate . . .”4

This report presents the results of the research that fulfills the 2022 Congressional 

directive to “engage in investor testing.” In this report, we discuss the research methods we used 

to examine RILAs and address issues raised by the 2022 directive. First, we examined the RILA 

market and how RILAs operate, providing information on the complexity of these products and 

the consequences of certain investor decisions. Additionally, we summarized the products 

1 See U.S. House of Representatives, Consolidated Appropriations Act, H.R. 2617, Pub. Law No: 117-328 (Dec. 29, 2022), available at

https://www.congress.gov/bill/117th-congress/house-bill/2617. 2 See id. 3 See id. 4 See id.
Investor Testing Report on Registered Index-Linked Annuities | 5

available on the market as of early 2023, thus providing an up-to-date view of RILA contract 

offerings. We used simulations to examine how specific features, such as the limits on upside 

and downside risk, may affect investor outcomes. This analysis illustrates the complexity of the 

products, the ways particular features work, and the importance of investor decisions about 

RILAs. 

Following our market analysis, we engaged in qualitative and quantitative testing for a 

draft sample Key Information Table (KIT), a hypothetical disclosure that contains information 

about RILA contracts and their features and risks.

5

 In our qualitative testing, consistent with 

best practices from communications design (see, e.g., Morgan et al., 2002), we aimed to 

understand investor responses to the KIT and to generate hypotheses about areas of confusion 

and impediments to investor understanding. Qualitative testing is critical to this project to better 

understand the barriers that everyday investors can experience in attempting to comprehend 

financial information. At the same time, because qualitative testing occurred with a limited 

sample of participants, it is essential for follow-up research to examine the KIT communications

with a larger sample. As such, we also conducted quantitative testing with approximately 2,500 

participants to examine specific design features of the KIT.

Throughout the research, our primary questions of interest were:

1. How do different features of RILAs affect investment outcomes in relation to these 

products?

2. What are investors’ reactions to RILA disclosures? What areas of understanding and 

misunderstanding arise when viewing the KIT?

3. Does background information about a RILA affect understanding of key concepts about 

RILAs? Specifically, what background information engenders the highest levels of 

understanding as a lead-in to viewing the KIT: (1) information about the contract 

purpose, (2) a plain-language introduction to a RILA, (3) a benefits-only introduction, or 

(4) no additional information?

4. Does the design of the KIT affect consumers’ understanding of RILAs? Specifically, 

does a question-and-answer (Q&A) format lead to higher comprehension than a 

statement-based format?

5. How does comprehension vary across investors with different levels of investment 

sophistication?

Ultimately, findings from these efforts provide insight regarding the extent to which investors 

have the information they need to make knowledgeable decisions about RILAs, and they suggest 

that there is potential for misunderstanding that could affect consumer welfare. We conclude by 

providing implications of our work for future research and policymaking.

5 In this report, all references to the KIT refer to different hypothetical disclosures used for testing purposes. There may be modifications in the 

disclosure requirements that the Commission may propose for RILAs to fulfill the 2022 congressional directive.
Investor Testing Report on Registered Index-Linked Annuities | 6

2. RILAs: Structure of Contracts and Investment Options

Insurance companies offer RILA contracts, each of which is accompanied by a menu of 

investment options.6 Over the life of a RILA contract, the investor picks from this set of 

investment options, making decisions about the underlying index, the “investment term” (i.e., the 

period during which investment returns are calculated), and the corresponding insurance 

features. Each time an investment is made (including at the end of an investment term), the 

investor can choose to allocate funds to one or more investment options. Throughout this report, 

we use the word “contract” to refer to the larger product that may include multiple investment 

options selected over the course of ownership. Investment options are typically characterized by 

an index; investment term; charges, fees, and penalties; and insurance features.

Importantly, certain decision-relevant attributes pertain to the overarching RILA contract 

(e.g., surrender charge period), whereas other attributes pertain to investment options (e.g., limits 

on upside and downside risks and investment term). The two-part structure, consisting of both 

the RILA contract and the investment options, adds a layer of complexity to RILA products,

which may make investment decisions about RILAs difficult for potential investors and 

purchasers to understand. 

RILAs generally have two phases: an accumulation phase and a payout phase. During 

the accumulation phase, the investor makes contributions to the RILA, chooses investment 

options, and accumulates returns through the investments. During the payout phase, the investor 

receives income from the RILA. Income may take the form of a lump-sum payment or, in some 

cases, the investor may choose to convert the lump sum to a stream of future income (an 

annuity).

Indexes

The value of an individual investment option depends, in part, on the performance of the 

underlying index.7 As noted below, certain indexes are relatively broad based (e.g., S&P 500),

whereas others are more specialized (e.g., SPDR Gold Shares [GLD]). Certain insurance 

companies also use proprietary indexes. It is reasonable to assume that continued growth in the 

RILA market will lead to an expansion of the number of indexes used. 

6 A RILA can be offered either as a standalone product or as an option within an annuity contract that also offers other options (e.g., variable 

annuities).

7 An underlying index could refer to any index, rate, or benchmark (such as an exchange-traded fund or product that tracks an index) used in the 

calculation of positive or negative interest credited to an investment option.
Investor Testing Report on Registered Index-Linked Annuities | 7

Investment Terms

Each investment option is associated with an “investment term.”8 The investment term 

determines the time period during which changes in value of the investment option are

calculated. In other words, gains or losses are calculated at the end of each term, and the 

associated value of the investment changes. As noted, the investment term is associated only 

with investment options, not the RILA contract overall (which could last longer). This 

difference means that the investor may select several investment options (each of which has its 

own investment term) over the life of the RILA contract. 

The role of investment terms also creates a situation that may be unique for RILA 

purchasers compared to other investments they hold. In particular, RILA investors periodically 

realize gains or losses at the end of each investment term: essentially forcing liquidation (sale of 

the investment option) at a specified date, even if market conditions are unfavorable. In contrast, 

during a down market, a mutual fund investor, for example, could wait to sell the fund, avoiding 

realizing those losses. Thus, the investment term feature adds a “timing risk” for RILA investors 

compared to certain other investments. 

Value Calculations

There are two common methods for calculating the change in value for an investment 

term: the point-to-point method and the average method. For the point-to-point method, the 

change in value is calculated by comparing the value at the start of the investment term to the 

value at the end of the investment term. Various calculations, such as adjustments due to the 

insurance features, are then applied to this value calculation. For the average method, the change 

in value is calculated based on periodic evaluations of the index level within an investment term

and then averages those periodic evaluations. Similarly, credits and deductions are then applied 

based on this average performance.

Insurance Features

RILAs are distinctive because they offer insurance features that limit the potential losses

of an investment relative to the underlying index. However, the insurance features also limit the 

potential gains. The insurance features apply only to the investment option, not to the RILA 

contract itself, and do not provide protections against penalties that might be applied for early 

withdrawals or other reasons.

8 In Registration for Index-Linked Annuities; Amendments to Form N-4 for Index-Linked and Variable Annuities, Investment Company Act 

Release No. 33-11250; 34-98624; IC-35028 (Sept. 29, 2023) (the "proposed rule"), the investment term is referred to as the “crediting period.” 

However, the phrase investment term was used in the qualitative and quantitative testing. As a result, we use the phrase investment term 

throughout this report.
Investor Testing Report on Registered Index-Linked Annuities | 8

There are two insurance features that can limit the losses for an investment option:

• Floors: A floor is a maximum loss (percentage) on the investment option. For example, 

a 10% floor will protect the investor from any loss greater than 10%, but the investor 

bears any losses up to 10%. A 5% floor would provide greater protection than a 20%

floor.

• Buffers: A buffer absorbs losses on the investment option up to a certain point. It does 

not turn losses into gains. For example, with a 20% buffer, the insurance company 

absorbs any losses up to 20%, but the investor bears any additional losses. In other 

words, if the index decreased by 25%, a 20% buffer would reduce the loss to 5%. 

Alternatively, if the index decreased by 15%, a 20% buffer would reduce the loss to zero.

A larger buffer provides greater protection.

In general, a buffer protects the investor from experiencing small losses for the investment 

option, but it does not protect them completely against large losses. In contrast, a floor protects 

an investor from experiencing large losses but does not protect against small losses.

Insurance features can also limit gains for an investment option:

• Caps: A cap is a maximum gain (percentage) on the investment option. It reduces the 

potential gains from investing in the option compared with investing in the components 

of the index to which it is linked (such as through an investment in an index mutual 

fund).

• Triggers: A trigger fixes gains to a specific rate so long as the index’s gain is over a 

corresponding trigger “threshold”. For example, consider an 8% trigger with a trigger 

threshold of 0%. The RILA would return 8% as long as the index experienced any 

positive return (i.e., above 0%), including above 8%. Thus, a trigger is more valuable 

when index returns are between the threshold and the trigger percentage (in this case, 

between 0% and 8%). As a result, a trigger below the index returns during the 

investment period is likely to limit gains relative to the index, whereas a high trigger 

could boost gains above the returns experienced by the index.

In general, both caps and triggers limit returns to RILA investment options relative to large 

increases in the value of the underlying index. However, a trigger can provide higher returns 

than the underlying index, when index returns are low.

A final insurance feature may act on both gains and losses for an investment option, but 

may also act on gains or losses alone:

• Participation rates: The participation rate acts as a multiplier on index performance. 

For example, a two-sided 85% participation rate reduces both gains and losses to 85% of 
Investor Testing Report on Registered Index-Linked Annuities | 9

the gains or losses on the underlying index. For example, a gain of 10% on the index 

would be reduced to a gain of 8.5% on the RILA and a loss of 10% on the index would 

be reduced to a loss of 8.5% on the RILA. A participation rate can be over 100%, in 

effect creating a leveraged investment product. An investment option with a participation 

rate may also have caps or other limits on gains.

Charges, Penalties, and Fees

Both RILA contracts and investment options can be associated with significant, avoidable 

financial penalties for investors. For the purposes of this report, we concentrated on three

financial penalties:

• Surrender charges: A RILA contract can define a “surrender charge period” and 

charges for withdrawing money from the contract during that period. These charges 

occur even when the initial investment option’s term is shorter than the surrender period. 

• Interim Value Adjustment and mid-term withdrawals: These penalties occur when 

money is withdrawn from an investment option before the end of its term (e.g., when 

money is moved out of an investment option to another option, even if the funds are not 

removed from the contract).9

 An interim value adjustment may be positive or negative. 

It has the potential to reduce the value of the investment option. In some situations, the 

investor could lose up to 90% of their investment.

• Tax penalties: In addition to other tax implications, penalties can occur when the 

investor withdraws money from the RILA contract before age 591⁄2.

To avoid all these penalties, an investor would need to hold the investment throughout the full 

surrender period, hold the investment until after the investor turns 59 1⁄2, and withdraw money 

only at the end of each investment option’s investment term. As a result, to avoid charges and 

penalties, an investor must likely select and manage a RILA contract for several years, making 

decisions about several investment options over the life of the contract. 

Annual fees are charged in some RILA investments, but the practice is not as prevalent as 

annual fees in the mutual fund industry, for example. As an alternative to charging annual fees, 

providers often make money in other ways such as by earning more on their investments than 

they promise to pay investors (Moenig, 2021).

9

RILAs measure the change in index values between the first and last day of the investment term. If you withdraw money from an investment 

option before the end of the term, the annuity contract specifies how the value of the investment option is determined. In some contracts, the 

value will be a pro-rata portion of market performance, whereas other contracts will include complex formulas based on interest rates and 

derivatives pricing models. Losses can even exceed any floor or buffer that would be available if an investor held the investment option until the 

end of the term.
Investor Testing Report on Registered Index-Linked Annuities | 10

3. Overview of the RILA Market and Simulated Performance During

Historical Periods

In this section, we provide an overview and examination of the RILA market, including 

descriptive statistics on RILA contracts and investment options, and how RILA investment 

options with different insurance features would have performed using simulations of various 

historical time periods. RILA products are complex, and the implications of their insurance 

features are not obvious. In particular, insurance features affect gains and losses depending on 

future index returns over the investment term. Unfortunately, at the time the investment is made, 

investors will not know these future returns. Additionally, insurance features are correlated with 

each other (as shown below), so a certain level of downside protection also limits possible gains. 

For an investor considering a RILA product, natural questions include: Do RILAs offer 

higher returns than the underlying index over time? Does the protection of buffers or floors 

outweigh the foregone gains from caps? How do the insurance protections protect my 

investments? Although part of the answer to these questions relates to an investor’s preferences, 

particularly their sensitivity to risk, those preferences can only be considered well informed if the 

implications of the RILA contract, the insurance features, and the payouts are understood and 

internalized. Our simulation analyses help illustrate how potential choices could have affected 

financial outcomes had an investor purchased a given RILA option at a particular time in the 

past. Ultimately, these simulations help examine the potential economic value and the risks 

associated with RILA investment options. While some form of these simulations may be helpful 

for investors to understand the implications of an investment option selection problem faced

when choosing among the specific insurance feature options studied, they may not reflect the 

economic values and consequences over the course of the life of the contract. That is, these 

types of simulations could be difficult for potential RILA investors to understand, because RILA 

insurance features change frequently, making past performance of today’s features irrelevant to 

current investors who are not able to access those particular features in future market conditions. 

This is particularly true at the end of an investment option’s investment term while the investor is 

under age 591⁄2 or within the surrender period: at future points in which they need to select new 

investment options, today’s insurance protections may have been replaced with a less favorable 

set of features. Of course, our simulations are not conducted with “today’s” features, but rather 

with the features offered as of our early 2023 data construction. 

These analyses are important because there is very limited research on RILA products, 

their performance, and the extent to which they serve investors’ needs. We are aware of only a 

few academic research studies on RILAs. These studies focused on understanding why RILAs 

may be popular with investors (Mezger, 2023) and how RILAs compare to fixed-income and 

variable annuities (Moenig, 2021).10 Neither study fully explored the simulated performance of 

10 A recent paper also discusses topics related to RILAs, but the context of this work is not germane to the current research. See Ellis, Moenig, & 

Wise (2023). 
Investor Testing Report on Registered Index-Linked Annuities | 11

RILAs nor how investors’ understanding of RILAs may vary when reading various disclosures, 

both of which are topics that we examine in this report. Although historical performance is no 

guarantee of future investment results and the insurance features available in the future may 

change, historical performance simulations allow us to document how certain product features 

offered as of the time we constructed our data may affect investors’ outcomes based on the 

historical record so that we may study the potential usefulness of the products to investors and 

gain a better understanding of the risk–reward tradeoff that RILA options offer. That 

understanding will remain somewhat incomplete so long as historical data on feature offerings is 

unavailable to researchers. 

Data 

We used data from Morningstar Intelligence Annuity Tool, which were extracted in 

March 2023 (Morningstar, 2023a). The data included all RILAs that were open for new 

investments as per Morningstar’s records of that date; our list of offerings may differ somewhat 

from other sources, such as the SEC’s EDGAR database, because sources can use their own

inclusion criteria.

11 The data contained information on the investment options, including 

insurance features (buffers, caps, triggers, participation rates, and floors). Because, to our 

knowledge, these data have not been used in prior academic research, the data were validated by 

manually reviewing prospectus reports. To better understand the performance of the underlying 

indexes, we merged this RILA information with index returns data, which we extracted from 

Morningstar Direct (Morningstar, 2023b). Our index returns data covered the period from 1990 

through 2019.

Methodology 

To provide a manageable set of comparisons for simulating historical RILA performance, 

we focused on a common index, investment term, and insurance feature combination: an S&P 

500 price return–linked index with an 18% cap, 10% buffer, and a 1-year investment term. We 

compared point-to-point returns under this investment option with the performance of the S&P 

500 price return–linked index, which allowed us to highlight how insurance features may work 

to reduce downside risk while limiting upside potential. Some RILA providers illustrate the 

impacts of the insurance features with graphs that compare returns of the underlying index to the 

returns one would receive with a RILA. An investment in an index (e.g., through an index fund) 

would typically track a total return index, which would have greater returns than a price return–

linked index due to dividends. However, comparing RILA returns to price return–linked indexes

more clearly illustrates how RILA insurance features affect outcomes relative to the index 

returns. 

11 EDGAR contains information based on RILA registrations, but registration does not necessarily mean the RILA is in operation and accepting 

money from investors.
Investor Testing Report on Registered Index-Linked Annuities | 12

Note that analyses in this section were chosen to illustrate how a RILA could work and 

are not intended to be representative of actual investment performance during this period. In 

particular, we concentrated on a common investment option offering and traced out the 

hypothetical performance of these insurance features had they been offered in prior years. 

To be explicit, our simulations provide a representation of how particular investment 

options would have evolved in value during the historical period. The simulations do not suggest 

a purchaser’s actual returns during this period, because the insurance features may have evolved 

over time. For example, a person investing in a 1-year investment option with an 18% cap and 

10% buffer may face a RILA investment menu with a different set of features after 1 year, in the 

case that the original 18% cap option is discontinued. Historical simulations for that new 

investment option could, therefore, show a markedly different historical simulation return profile 

than the original option—one that could be more or less favorable for the investor. And, unlike 

some other investment vehicles, the investor cannot simply walk away from the RILA contract 

without incurring surrender charges or other penalties. Because data on such variation of the 

insurance features over time are unavailable, even the savviest investor has limited tools 

available to ascertain the value of the RILA contract over the life of the contract. In essence, our 

simulations help understand the value of the momentarily available investment options, but they 

do not help shed light on the overall economic value and risks of the RILA contract over the 

investor’s entire investment period.

Furthermore, the analyses discussed in this section did not address costs due to 

withdrawing money from an investment option during an investment term, surrender charges, or 

any tax implications (due to tax deferral or tax penalties for liquidating before the holder is 591⁄2 

years old). The assumption was that the investor purchased the RILA with the associated 

investment option on a given date and held it until the end of the investment term; the investor 

may have had to put the resulting funds into another investment option at the end of the term to 

avoid surrender charges or other penalties. Research on 401(k) retirement plans has suggested 

that withdrawals from retirement plans before the age of 591⁄2 may be fairly common, with as 

many as 40% of retirement plan participants cashing out retirement savings when leaving an 

employer (Armour et al., 2017; Lu et al., 2017; Wang et al., 2022). If withdrawals from RILAs 

are similarly common, our results may overstate the returns from RILA investments because the 

analyses did not account for fees, charges, and penalties.

Limitations

Caps and triggers vary frequently over time, and we are not aware of any data source that 

compiles historical rate sheets. Without historical data on insurance features, we cannot say 

whether these products would have been common—or even available—in the years since RILAs 

began being offered. Additionally, we cannot compare available rates on insurance features to 

historical rates, so the simulations may have over or understated RILA performance relative to 

what would have been available for an investor at the time of purchase. RILA products were not 

offered before 2010, so the performance simulations used periods during which RILAs were not 
Investor Testing Report on Registered Index-Linked Annuities | 13

available in order to provide a more complete picture of how insurance features related to the 

historical performance of the accompanying index. (After all, for example, an investor evaluating 

a 10% buffer on the S&P 500 might reasonably be interested in how historically common it is for 

the S&P 500 to lose more than 10%, and that historical question would reasonably not be 

confined to the period in which a RILA product of that type was offered).

12 These limitations 

complicate the process of validating our data and highlight a critical lack of information about 

this market, potentially hampering investors’ ability to obtain and make use of decision-relevant 

information for evaluating the economic value of and comparing products before they purchase 

and manage their investments. To the extent that inaccuracies remain in the data, reported 

statistics may have been affected; however, our individual simulations have reasonably 

approximated the performance of the stated insurance features over the historical period. 

Despite these caveats, these simulation results provide a useful perspective on historical 

performance, allowing us to demonstrate how a particular (current) investment option would 

have performed during certain historical periods; in principle, this type of information could be 

informative for a potential investor. 

Descriptive Statistics on Overall RILA Market

At the time of these data, 19 insurance companies offered RILAs, for a total of 71 RILA 

products and 1,832 different investment options. The number of investment options available for 

some contracts can be large, which may raise concerns about choice overload, especially because 

investors are unlikely to have previous experience with RILAs (Scheibehenne et al., 2010). In 

addition, when selecting from investment menus of this type, naive diversification (spreading 

money equally across menu options) is often a strategy that investors pursue (Benartzi & Thaler, 

2001; Scholl, 2022), and the negative implications of too many choices in an investment context

has been documented extensively (see review in Scholl & Fontes, 2022). Furthermore, most 

insurance companies only began offering RILAs within the past decade (with market entry 

between 2010 to 2023), meaning that there is limited performance history for these products.

RILA Indexes, Investment Terms, and Insurance Features

Each investment option comes with an underlying index. Figure 1 shows the frequency 

of the underlying offered indexes. As shown, common indexes are the S&P 500, Russell 2000, 

MSCI EAFE, and NASDAQ-100 price return indexes. These four indexes comprise over 80% 

of the indexes underlying investment options available in the market. 

12 Although this section presents the performance of investment options over realized historical periods, we also performed an analysis that 

simulated random draws of the index’s return based on the historical distribution of index returns. The results presented in this section are similar 

to those constructed based on random draws using historical returns.
Investor Testing Report on Registered Index-Linked Annuities | 14

Figure 1. Indexes Offered.

The investment term length specifies the period during which the investment returns are

calculated. Figure 2 shows that the most common term lengths are 1, 3, and 6 years. Investment 

options with 2- and 5-year terms are also available, but these are relatively rare.

Figure 2. Term Lengths Offered.
Investor Testing Report on Registered Index-Linked Annuities | 15

Investment options are typically associated with insurance features that can limit gains 

and losses, as described above. In Figure 3, these insurance features are categorized and

described in terms of upside and downside combinations. As shown, the combination of a cap 

and a buffer is especially common, capturing nearly 80% of all investment options offered. 

Figure 3. Insurance Feature Combinations Offered.

Figure 3 does not show the amount of insurance protection that is provided. In general, 

to offer more protection (e.g., a larger buffer percentage or a smaller magnitude floor), insurance 

companies usually impose a lower limit on gains. Tables 1 and 2 show the relationships between 

cap levels and the corresponding buffers or floors. These tables are limited to investment options 

with 1-year terms that are linked to the S&P 500 price return index, given that these investment 

options are relatively prevalent.

Both tables show that, in general, higher cap rates come with smaller downside 

protection. For example, cap rates between 10% and 20% are associated with buffers of up to 

25%. In contrast, cap rates between 20% and 30% are only associated with buffers of 10% 

(Table 1). Table 2 displays a similar relationship; for example, cap rates that are less than 10% 

may limit losses entirely (i.e., a floor of 0%), but cap rates between 10% to 20% are most 

commonly associated with a floor of -10%. 
Investor Testing Report on Registered Index-Linked Annuities | 16

Table 1. Comparing Caps and Buffers for Investment Options With 1-Year Terms and the S&P 

500 Index.

Buffer

Caps 10% 15% 20% 25% 30% 40% Total

10% or less 1.5% 1.5% 0% 0% 2.9% 1.5% 7.4%

10.1% to 20% 38.2% 17.6% 10.3% 5.9% 0% 0% 72.0%

20.1% to 30% 20.6% 0% 0% 0% 0% 0% 20.6%

Total 60.2% 19.1% 10.3% 5.9% 2.9% 1.4% 100%

Table 2. Comparing Caps and Floors for Investment Options With 1-Year Terms and the S&P 

500 Index.

Floor

Caps -20% -10% -5% 0% Total

10% or less 0% 0% 3.3% 30% 33.3%

10.1% to 20% 6.6% 40% 3.3% 13.3% 63.3%

20.1% to 30% 3.3% 0% 0% 0% 3.3%

Total 9.9% 40% 6.6% 43% 100%

Although there are tradeoffs between these features, Tables 1 and 2 also show there is 

considerable variation in the caps offered for a given buffer or floor across providers. Some of 

these differences could be attributed to differences in other dimensions of the RILA that are not 

shown. For example, the Interim Value Adjustments could vary between RILA providers.

Finally, the types of insurance features vary by investment term. Figure 4 shows the most 

common four combinations of insurance features that are available for options that have 1-, 3-, or 

6-year terms. As shown, triggers are generally only available for investment options with 1-year 

terms (although there is a single offering for a 6-year term). The cap-and-buffer combination is 

the most common insurance feature for all three of these term lengths.
Investor Testing Report on Registered Index-Linked Annuities | 17

Figure 4. Insurance Features Offered by Term Length.

Illustrative Examples Comparing Investment Option Value to an Index

To illustrate how insurance feature choices can affect the contract value, Figure 5 

presents the value of a $10,000 investment in our chosen investment option compared with an

investment (outside of a RILA) in the S&P 500 index from 1999 to 2005 (as one might have 

realized through investment in an S&P 500 index fund).13 Throughout this analysis, we used the 

price returns of the S&P 500 (or other relevant indexes), not total returns. This means that the 

returns on the index shown do not include any dividends that would have been received if one 

invested in the index outside of a RILA. As a result, our analysis understated the potential 

positive returns on an investment in an index. We note that the return earned from a RILA 

typically is based on the price returns, not the total returns of the index, but it is at the discretion 

of the insurance company.

From 1999 to 2000, the S&P 500 rose by 20%, but the RILA’s returns would have been 

capped at 18%; thus, by 2000, the RILA would have slightly trailed the index. The situation

changed from 2000 to 2002, when the S&P 500 dropped in value. Over that period, the RILA’s 

buffer would have reduced losses, allowing its cumulative value to exceed that of the 

hypothetical S&P 500 investment. By 2005, at the end of the graph, the investment in this RILA 

13 Note, however, that index fund fees are not considered. 
Investor Testing Report on Registered Index-Linked Annuities | 18

investment option would have increased by 27% (ending at $12,730), whereas the index lost 

1.5% (ending at $9,857). 

Figure 5. Simulated Value of a $10,000 Investment in the RILA and Index From 1999 to 2005.

As a comparison, Figure 6 shows the same RILA held for a 6-year period starting on 

January 1, 1991. In this instance, at the end of 6 years, the RILA would have underperformed 

the S&P 500 index due to the 18% cap, which would have limited the returns in certain years 

when the index gained value. The final investment value of the RILA in 1997 would have been 

approximately $4,000 lower than the index. Together, these two figures illustrate the fact that 

the value of a RILA (and the value of a RILA relative to its index) can vary significantly 

depending on the time period during which it is chosen, even holding constant the insurance 

features.
Investor Testing Report on Registered Index-Linked Annuities | 19

Figure 6. Simulated Value of a $10,000 Investment in the RILA and Index From 1991 to 1997.

RILA Performance During Various Market Conditions

To provide a more general view of how the relative performance of the RILA and index 

(as shown in Figures 5 and 6) could have varied in different time periods, we explored a range of 

hypothetical starting investment dates. Figure 7 presents a histogram of 6-year RILA and index 

returns starting each month from 1990 to 2013. The pink bars capture returns for the index, 

whereas the overlaid blue bars present simulated returns for the RILA. Specifically, the 

histogram includes 276 return values, each of which represents a 6-year term starting in a 

particular month: January 1990 to January 1996, February 1990 to February 1996, and so forth, 

through January 2013 to January 2019. Although much of this time period includes periods 

when RILAs were not available (since RILAs were first offered in 2010), this analysis illustrates

how returns can vary depending on the insurance features and the timing of the investment; they 

also illustrate how the insurance features relate to the historical performance of the index. As 

with Figures 5 and 6, the analytic assumption was that the 1-year RILA investment option was 

reinvested in an identical investment option for six consecutive 1-year investment periods. 
Investor Testing Report on Registered Index-Linked Annuities | 20

Figure 7. Simulated Ending Values of $10,000 Investments After 6 Years.

Figure 7 illustrates that the insurance features of the RILAs we have been considering 

(i.e., the 18% cap and 10% buffer) have the potential to attenuate the magnitude of both losses 

and gains. In particular, the height of each bar is proportional to the probability of that realized 

investment outcome. It is apparent that the distribution of the RILA returns in Figure 7 is more 

condensed than the distribution of index returns, with fewer observations with extremely positive 

or negative values. This result suggests that this RILA investment option has a narrower range 

of investment outcomes in the way one would expect: the purchaser experiences smaller gains, 

but also fewer losses of a smaller magnitude.

Although Figure 7 presents the distribution of returns, it does not illustrate how the 

market conditions related to the performance of the RILA investment option and the index. 

Extending this analysis, Figure 8 allows us to examine the simulated performance of the 

investment option (yellow line) against the corresponding performance of the index (black line); 

the investment option’s relative gain or loss against the index’s performance is also provided (red 

line). To be more precise, each point on the yellow line represents the final investment value 

that would have been obtained by investment in the 1-year term, 18% cap, 10% buffer RILA 

investment option on the specified date, if it were rolled over for 6 total years. For example, the 

left-most 1990 value of approximately $19,332 shows that a $10,000 RILA investment with 

these features made on February 1, 1990, would have achieved gains of $9,332 six years later. 

The black line similarly represents the value of a 6-year investment in the corresponding index. 

Thus, the performance presented in line graphs in Figures 5 and 6 are condensed in Figure 8 to

single points at the beginning of 1999 and 1991, respectively.
Investor Testing Report on Registered Index-Linked Annuities | 21

Figure 8. Simulated Historical Investment Values by Initial Investment Date.

Note. The figure compares the RILA investment option (1-year term, 18% cap, 10% buffer, invested for six successive 1-year 

investment periods) and the index returns over the same 6-year investment period. The black line is the values of a $10,000 

investment over a 6-year investment period in the index; the yellow line (triangles) is an analogous line for the RILA investment 

option. The red line (circles) is the difference between the yellow and black lines. Dates correspond to the start date of the 

investment. Results are not adjusted for inflation. 

In Figure 8, we can see that the high returns for the 6-year periods starting in the early 

1990s would have been limited by the RILA investment option. Conversely, the relatively poor 

returns for the 6-year periods starting in the late 1990s would have been somewhat mitigated by 

the buffer in our chosen RILA. For a hypothetical investor, that means they would have had a 

very small chance of experiencing a negative nominal return from the RILA investment option

during these historical periods, but they would have also missed some of the strong returns that 

the index experienced in the early and late parts of the historical period. 

The difference between the index and the RILA investment option (red line) would have 

been negative over periods of market growth (e.g., starting dates of 1990–1995) and greatest for 

investments starting in 1994. Put another way, RILA investments would have had a good chance 

of experiencing a marginally better performance than the index, primarily during the 6-year 

periods starting in the late 1990s to late 2000s. The RILA investments also would have reduced 

investors’ chances of a slightly negative return during that same period (as losses maxed out at 

15% but average losses during loss periods were only 6.8%). However, the RILA investments

would have foregone considerable investment gains for the 6-year periods starting in the early 

1990s and following the 2008 financial crisis. Figure A1 in Appendix A shows an analogous 

graph for a 12-year investment period (i.e., rollovers for 12 years) and finds similar patterns with 

respect to the RILA investment option and the index, insofar as returns and relative returns 

would have varied over time. 
Investor Testing Report on Registered Index-Linked Annuities | 22

Comparing RILA Features

Thus far, we have explored a RILA investment option with one set of parameters (1-year 

investment term, 18% cap, 10% buffer, and linked to the S&P 500 price return index). However, 

as noted above, there is tremendous variation in indexes, investment terms, and insurance 

features available to potential investors that may affect their outcomes (Figures 1–4). In this 

section, we explore how differences in these choices can affect simulated returns. 

We identified a set of RILA investment options with different features than our 

previously considered case. Our intention was to vary a single feature at a time to isolate the 

effect of one change, such as a change in the level of a cap holding the buffer constant. 

However, for many RILA options, multiple dimensions of the bundle of features change together 

(as shown in Tables 1 and 2). Additionally, we attempted to select from a set of investment

options offered by companies that also offered our focal option (i.e., 1-year investment term, the 

18% cap, 10% buffer, and linked to the S&P 500 price return index). Our intent was to capture 

realistic alternative options that an investor may encounter. All investment options were linked 

to the S&P 500 price return index, so that the differences would be due solely to their other 

features. In the end, we identified the following alternative investment options:

1. An investment option with a 15% buffer (instead of a 10% buffer), thus providing more 

protection on the downside. As a consequence of this greater protection, the cap for this 

option decreased to 13.5%. 

2. An investment option with a trigger instead of a cap. The trigger was 10.9%, with a 

corresponding threshold of 0%. The buffer remained at 10%.

3. An investment option with a floor of -20% (instead of a buffer of 10%) and a cap of 

19.5%. This option was chosen because it offered the closest cap to the RILA presented

in this section among all investment options with a floor.

In addition, we considered the role of the investment term. In general, caps tend to get larger 

with longer investment terms, since cap rates are described in terms of overall changes over the 

term (not annualized rates). Also, since market returns have historically often been positive in 

the long run, returns for RILAs with longer investment terms are less often in the range for 

which a 10% buffer would reduce losses. As a consequence, higher caps can be offered. To 

examine the role of RILAs with longer investment terms, we also simulated:

4. An investment option with a 3-year term maintaining a 10% buffer and a cap of 130%. 

5. An investment option with a 6-year term maintaining a 10% buffer and a cap of 500%.

Variations in Insurance Features and Simulated Returns

The histogram in Figure 9 was constructed analogously to Figure 7. Because all 

simulated investment options were linked to the S&P 500, the past returns of the index (pink 

bars) are the same for all panels in Figure 9. The effect of increasing the buffer from 10% to 

15% and decreasing the cap from 18% to 13.5% is seen by comparing Panels A and B. As 

shown, the increased buffer and lower cap (Panel B) are associated with more compressed
Investor Testing Report on Registered Index-Linked Annuities | 23

returns. In particular, the frequency of returns over 80% would have reduced from 35% to 18%, 

and the frequency of returns over 20% would have increased from 79% to 85%. Both the 10% 

buffer and 15% buffer examples (Panel A and Panel B) would have reduced the likelihood of 

losing money to about 1% compared to a direct investment in the index (which, during the time 

period from 1990 to 2013, lost money about 15% of the time; see Table 3 on page 29). On net, 

this scenario presents a more conservative set of outcomes than our original investment option. 

Figure 9. Distribution of Returns with Other Combinations of Insurance Features.
Investor Testing Report on Registered Index-Linked Annuities | 24

Panel C in Figure 9 provides the distribution of simulated historical returns for a RILA 

investment option with a 10.9% trigger and a 10% buffer. This combination of features would 

have provided the most downside protection out of our presented investment options; the 

investment option featuring a trigger would have never lost value over a 6-year investment 

period for any of our start dates. On the other hand, with a 10.9% trigger, the maximum return 

over 6 years would have been 86%, which this option would have reached for 43% of the 

simulation start dates. The index return exceeded the investment option’s return for 37% of the 

start dates, which shows that it would not have been uncommon for the RILA option to miss out 

on index gains.

Panel D provides the returns distribution for a RILA investment option with a 20% floor 

and a slightly increased cap at 19.5%. This distribution is also relatively truncated, with the 

maximum investment gain reaching $14,280. The distribution is bimodal, meaning that the 

distribution shows two highly frequent outcomes: one in which investors would have lost money 

relative to their initial investment, and one in which they would have gained money. Whereas 

the probability of a loss with direct investment in the index was 15%, the probability of losing 

money was 37% under this combination of features. This difference is because small losses 

(which would have been relatively common) would have been incurred by the forced liquidation 

of the investment at the end of the term (whereas with many investments, such as in an index 

fund, the loss remains a paper loss until the investor decides to sell). The highest gain for the

option in Panel D was 43%, which it would have reached 38% of the time. Clearly, however, the 

cap would have limited upside returns relative to the index. 

Figure 10 traces the historical simulation return results over time for these three variants

on our baseline case. The line graphs display the same data as the histograms but offer a 

different view in that they highlight the relationship between index returns and investment option 

returns over time so that it is clearer how the investment option would have performed given a 

particular realization of index performance. Panels A and B suggest a moderating of returns, but 

the option presented in Panel C highlights an example with very little historical downside 

protection, an increase in the probability of losing money, and a very limited upside in terms of 

returns. 
Investor Testing Report on Registered Index-Linked Annuities | 25

Figure 10. Simulated Historical Investment Values by Initial Investment Date, Comparing 

Different Insurance Features.

Panel A

Note. Panel A compares the RILA investment option and the index returns over the same 6-year investment period. The black 

line is the values of a $10,000 investment over a 6-year investment period in the index; the yellow line (triangles) is an analogous 

line for the RILA investment option. The red line (circles) is the difference between the yellow and black lines. Dates correspond 

to the start date of the investment. Results are not adjusted for inflation.

Panel B

Note. Panel B compares the RILA investment option and the index returns over the same 6-year investment period. The black 

line is the values of a $10,000 investment over a 6-year investment period in the index; the yellow line (triangles) is an analogous 

line for the RILA investment option. The red line (circles) is the difference between the yellow and black lines. Dates correspond 

to the start date of the investment. Results are not adjusted for inflation.
Investor Testing Report on Registered Index-Linked Annuities | 26

Panel C

Note. Panel C compares the RILA investment option and the index returns over the same 6-year investment period. The black 

line is the values of a $10,000 investment over a 6-year investment period in the index; the yellow line (triangles) is an analogous 

line for the RILA investment option. The red line (circles) is the difference between the yellow and black lines. Dates correspond 

to the start date of the investment. Results are not adjusted for inflation.

Variations in Term Length and Simulated Returns

Turning to the effect of varying the term length, Figure 11 presents returns under 1-, 3-, 

and 6-year terms, assuming a total investment period of 6 years. Note that, as term lengths grow 

longer, the caps also tend to increase to accommodate potentially higher growth over a longer 

period of time; cap rates are described in terms of point-to-point changes and are not annualized 

growth rates. In practice, the higher caps are rarely applied because they would require 

substantial returns in the underlying index.

A perhaps surprising result was that there would have been a greater chance of losses 

with these examples under the 3- and 6-year terms (Panels E and F) than under the 1-year term 

(each diagram again presents an investment for a total of 6 years). At the same time, the 3- and 

6-year investment options would have tracked the upper part of the returns distributions quite

closely to the index; these results differ from the RILA investment option with the 1-year term, 

which simulated returns that were significantly more likely to forego higher returns. 

When comparing the 3-year and 6-year investment term options, there would have been

differences at values between $10,000 and $15,000. In particular, the 6-year investment option 

would have created a concentrated mode in the $10,000 bin and would have had an increased 

probability of a negative return. For this example, the 3-year term may have allowed for more 

protection than the 6-year term, since the same 10% buffer could have been applied twice during 

the investment period. 
Investor Testing Report on Registered Index-Linked Annuities | 27

Figure 11. Distribution of Returns With Different Term Lengths.

Figure 12 illustrates the simulated returns for these comparisons by start date. In this figure, we 

see that the 3- and 6-year products (with caps of 130% and 500%, respectively) would have been

largely unconstrained from capturing the full gains of the index during growth periods. They 

also would have provided protection against some of the losses that would have occurred on the 

downside, with the chance of a negative return much lower for the 3-year product than for the 6-

year product. 
Investor Testing Report on Registered Index-Linked Annuities | 28

Figure 12. Simulated Investment Values by Initial Investment Date, Comparing 3- and 6- Year 

Term Products.

Panel A

Note. Panel A compares the RILA investment option and the index returns over the same 6-year investment period. The black 

line is the values of a $10,000 investment over a 6-year investment period in the index; the yellow line (triangles) is an analogous 

line for the RILA investment option. The red line (circles) is the difference between the yellow and black lines. Dates correspond 

to the start date of the investment. Results are not adjusted for inflation.

Panel B

Note. Panel B compares the RILA investment option and the index returns over the same 6-year investment period. The black 

line is the values of a $10,000 investment over a 6-year investment period in the index; the yellow line (triangles) is an analogous 

line for the RILA investment option. The red line (circles) is the difference between the yellow and black lines. Dates correspond 

to the start date of the investment. Results are not adjusted for inflation. 
Investor Testing Report on Registered Index-Linked Annuities | 29

Summary Performance Statistics

Table 3 reinforces these points with summary statistics about the simulated record of 

these investment options compared to the index. The table presents the mean returns of a 

hypothetical $10,000 investment, the mean gains over the index, the percentage of the time the 

RILA investment would have underperformed the index, and the percentage of time the RILA 

investment returns would have been above certain thresholds (columns “> 0%” through 

“> 80%”). Our baseline investment option (1-year term, 18% cap, 10% buffer) worked in the 

expected way relative to the index: lowering the probability of (typically small) losses and 

shifting the distribution of returns so that, for example, the probability of a gain greater than 40% 

was higher with the RILA investment option; however, the likelihood of a gain in excess of 80% 

was attenuated. 

The bottom two rows of Table 3 show the 3-year and 6-year investment options. It seems 

that the 6-year term product would have had a similar returns profile as the index, whereas the 3-

year product would have increased the probability of no loss (> 0%) and the probability of a 

small positive gain (> 20%) compared to the index. On average, investors would have seen a 

higher investment performance from direct investment in the index (outside of a RILA) than with 

most of these examples, but the RILA investment options would have helped avert small losses 

that occurred at particular times. The floor insurance feature largely had more problematic 

performance in the historical period: relative to the index, it was frequently more likely to incur 

losses and to fail to achieve high investment performance. On average, an investor choosing this 

product would have lost 45% of their initial investment compared with a direct investment in the 

index. 

Table 3. Summary Performance Statistics of Selected RILA Investment Option Examples.

Features Mean SD

Mean 

Gain

SD 

Gain < Index > 0% > 20% > 40% > 60% > 80%

S&P 500 Index $16,494 6,791 - - - 85% 58% 51% 46% 40%

18% Cap, 10% Buffer, 1-yr term $15,878 3,968 -$616 3,125 45% 99% 79% 55% 48% 35%

13.5% Cap, 15% Buffer, 1-yr term $15,100 2,707 -$1,395 4,415 51% 99% 85% 57% 44% 18%

10.9% Trigger, 10% buffer, 1-yr 

term $15,256 3,032 -$1,238 4,509 47% 100% 78% 57% 44% 41%

19.5% Cap, 20% Floor, 1-yr term $11,930 2,135 -$4,565 5,058 86% 63% 48% 40% 0% 0%

130% Cap, 10% Buffer, 3-yr term $17,129 6,305 $635 712 19% 98% 71% 53% 48% 41%

500% Cap, 10% Buffer, 6-yr term $16,588 6,693 $94 257 34% 85% 58% 51% 46% 40%

Note. The mean column is the average end-dollar amount of a $10,000 investment in the RILA for a 6-year rollover period across 

all start months. The columns with “gain” compare the RILA returns to the index. The “< Index” column shows the percentage 

of start months that the RILA would have underperformed the index. The “> 0” column shows the percentage of start months for 

which the end-investment level would have been greater than the initial investment. The “> 20%” column shows the percentage

of start months for which the return would have been greater than 20%.
Investor Testing Report on Registered Index-Linked Annuities | 30

Once again, we stress that these examples are provided to illustrate that RILA investment 

options can have nonintuitive implications, such as an investment option with a floor 

underperforming an index in the majority of simulated historical cases. The examples were 

chosen by identifying a common investment product option and examining deviations in features 

from that option for the purpose of understanding how RILA products can serve investment and 

investment–insurance functions. As illustrative examples, they are in no way intended to be 

representative of how the insurance features work across a broader set of products. 

Risk

The insurance protections that the RILA investment options provide suggest a natural 

interest in RILA products’ ability to mitigate risk. The examples considered previously 

suggested that some RILA investment options could be helpful at mitigating downside while 

limiting the upper distribution of returns. 

Standard economic and finance theory typically conceptualizes risk in terms of the 

variation in outcomes such as the standard deviation of returns or the Sharpe Ratio. For some 

investors, particularly retail investors, different formulations of risk may be relevant or more 

intuitive (Holzmeister et al., 2020); for example, some investors might prioritize a definition of 

risk related to the chance of losing investment dollars over a variation in returns, which in some 

circumstances might represent variation in the degree of positive returns. 

Bearing this in mind, in this section, we examine cases in which the RILA investment 

option would have had a higher risk in terms of the variation in returns and in terms of an 

increased probability of losing money. Of course, other variations of risk concepts might be of 

interest to other potential investors, but we confined our discussion to the above for the present 

analysis. 

It is important to note that although in some cases, these higher risk levels for the 

investment option may be adverse for the investor, in other cases, they may not be. For example, 

Figure 13 provides an example of an investment option that would have demonstrated a much 

higher implied volatility than the associated index. By visual inspection, for much of the 

historical period, the RILA investment option would have outperformed the index, but there 

would have been high variability in the realized returns across start dates. The investment option 

would have avoided some of the index’s cumulative losses during the investment start dates in 

the late 1990s and would have cushioned some of the index’s cumulative losses during the 

investment start dates in the latter 2000s. 
Investor Testing Report on Registered Index-Linked Annuities | 31

Figure 13. Examples of RILAs With Higher Risk Than the Underlying Index.

Note. The figure compares the RILA investment option and the index returns over the same 6-year investment period. The black 

line is the values of a $10,000 investment over a 6-year investment period in the index; the yellow line (triangles) is an analogous 

line for the RILA investment option. The red line (circles) is the difference between the yellow and black lines. Dates correspond 

to the start date of the investment. Results are not adjusted for inflation. 

Figure 14 provides an example of an investment option that, during the historical period,

would have increased the probability of loss while forgoing substantial gains. In addition, it 

would have provided only slight protection against losses that would have been incurred for 

investment terms originating in the late 1990s and very early 2000s. In fact, when experiencing 

a loss, the average value of a loss for the investment option would have been about 3% higher 

compared to the index. In other words, the investment option would have been more likely to 

lose money and, on average, would have had a higher magnitude of loss when there was a loss 

compared to the index (note that this is on average when the investment option or the index 

independently dipped negative, so the “average loss if loss” magnitudes were not computed over 

comparable time periods). This particular pattern would have emerged with, among other things, 

the substantial gains in the NASDAQ followed by a large crash, which is displayed in Figure 14,

for the investment periods starting in the late 1990s. In these circumstances, the cap would have 

greatly limited gains for periods starting in the 1990s, but the buffer would have only slightly 

tempered losses experienced during the crash. Moreover, this example highlights some of the 

cumulative effects of the insurance provisions over successive periods: Some initiation dates 

would have resulted in a capping of the upside, followed by a realization of sometimes 

successive years of downside. As such, foregone gains and losses would have compounded

considerably.
Investor Testing Report on Registered Index-Linked Annuities | 32

Figure 14. Examples of RILAs With Higher Risk Than the Underlying Index.

Note. The figure compares the RILA investment option and the index returns over the same 6-year investment period. The black 

line is the values of a $10,000 investment over a 6-year investment period in the index; the yellow line (triangles) is an analogous 

line for the RILA investment option. The red line (circles) is the difference between the yellow and black lines. Dates correspond 

to the start date of the investment. Results are not adjusted for inflation.

Figures 13 and 14 make clear that some RILA investment options may increase 

investors’ risk rather than mitigate investors’ risk compared to direct investment in the market, 

even when early withdrawal penalties are not applied, which may be concerning for investors 

given that RILAs are marketed as a risk mitigation device. Further research and more 

transparency are needed in order to document the prevalence of such patterns in the marketplace 

as a whole and determine the extent of any investor protection concerns they may raise.

Summary and Discussion

Overall, our results suggest that the choices that purchasers make about RILA investment 

options can significantly impact returns. We also identified investment options that would have 

demonstrated potentially adverse risk and return properties for investors, as reflected in 

simulated historical performance. 

These results underestimate the possibility that actual investors would have experienced 

investment losses over the historical simulation period with RILAs to the extent that we did not 

account for investor withdrawals before the end of an investment term (which may incur Interim 

Value Adjustments), before the end of the surrender period (which may incur surrender charges), 

or before age 591⁄2 (which would incur tax penalties). Previous research has found that as many 

as 40% of 401(k) retirement plan participants liquidate their accounts upon job transition 

(Armour et al., 2017; Lu et al., 2017; and Wang et al., 2022), suggesting that using retirement 

funds for other purposes can be common. If investors were to withdraw money from their RILA 
Investor Testing Report on Registered Index-Linked Annuities | 33

contracts as often as they do with their retirement funds, mid-term withdrawal penalties and 

surrender charges could apply with some frequency. Further research and data transparency are 

needed to understand and monitor the impact of such penalties on investors. For example, if in 

the extreme, most RILA investors need to liquidate a RILA investment, incurring associated tax

penalties, Interim Value Adjustments, and surrender charges, these charges and penalties could 

limit the economic value of the products, or create other balance sheet stresses for households. 

Given that some penalties may be significant, one would hope that they are rarely levied in 

practice; even if the penalties paid do not affect the financial system systemically, their impact 

on individual investors could still be significant. Data on RILA withdrawals and penalties are 

thus likely to be relevant to investors, financial intermediaries, and other stakeholders. Such data 

seem critical to an investor’s ability to make informed investment decisions, and for 

understanding the extent to which RILA recommendations result in beneficial outcomes for 

investors. 

 
Investor Testing Report on Registered Index-Linked Annuities | 34

4. Review of RILA Marketing

To better understand RILA products and the information investors may receive, we 

reviewed the websites of 13 insurance companies that sell RILAs. Although this was not a 

review of all RILAs available in the market, it provided us with a picture of how RILAs are 

marketed to consumers. These companies were identified using the 2021 Secure Retirement 

Institute’s U.S. Individual Annuities Sales Survey (LIMRA, 2022). This review included the 

web pages, product brochures, videos, prospectuses, fact sheets, and other accompanying 

promotional material available to retail investors. The reviewed marketing materials presented 

the balance between the opportunity for growth and the reduced risk of losses on the investment 

relative to savings alone or more conservative investments as one of the main benefits of a 

RILA. If comparisons were made to the returns on the underlying index, they were typically 

based on an example or a figure that highlighted the loss protection, not the caps on gains. The 

reviewed materials were typically marketed toward those who are nearing retirement, featuring 

photos and vignettes that suggested that the product is relevant for individuals nearing 

retirement, although some materials discussed end-of-life issues for investors dealing with 

terminal illness. Prospectuses were readily available for most companies, although some were 

absent or challenging to locate. Among the 12 companies that had prospectuses available, the 

number of pages in the prospectuses ranged from 75 to 262, at an average of 174 pages. The 

length and language of these documents could be daunting to an average investor. 

As we saw in the simulations in Section 3 of this report, insurance features (including 

caps, triggers, floors, and buffers) are important choices for investors. Many of the reviewed

companies emphasized that RILAs can be customized to fit the investor’s needs. However, to 

make informed choices, potential purchasers need to understand the offered features and their 

actual implications for investing over long periods of time. Although all companies described 

these features, they differed in how information about features was presented, using hypothetical 

scenarios or vignettes, definitions, interactive tools, or graphs to illustrate the different insurance

features. The placement of information also varied, with some displaying information 

prominently and others only providing technical information in a prospectus or rate sheet. Other 

key topics such as early withdrawal charges, investment terms, and index options were included 

in many but not all materials.
Investor Testing Report on Registered Index-Linked Annuities | 35

5. Qualitative Testing

We conducted two rounds of in-depth interviews to assess potential RILA disclosure, 

most notably a hypothetical KIT, for areas of confusion or misunderstanding, and to gain insight 

on investors’ mental models regarding the way RILA products function, including potential 

benefits, risks, and drawbacks. Our qualitative testing used a semi-structured, open-ended 

format so that participants could express their reactions and beliefs, regardless of accuracy. This 

method is important for uncovering how everyday investors reason about RILA products and for 

understanding their reactions to potential RILA disclosures. 

Methods

To recruit participants for the in-depth interviews, the research team developed a 

screening survey to target two groups of participants: annuity owners and annuity “shoppers.” 

Owners reported currently having an annuity, whereas “shoppers” reported actively shopping for 

—or planning to shop for—“a financial product to manage income flow after retirement.”14

Additionally, participants needed to have at least $25,000 in retirement assets. We aimed for an 

even mix of participants across demographic characteristics, locations, and (in Round 2 only) 

mutual fund literacy (Scholl & Fontes, 2022).

15 Potential participants expressed interest in 

participating in a 1-hour virtual interview on annuities. In total, we recruited nine participants 

for the first round of interviews and 11 participants for the second round of interviews. In

Round 2, several participants were significantly more sophisticated than the average investor, 

having worked in the field of finance, potentially as investment professionals, and several 

participants were high net-worth individuals. Participants consented to participate in the 

interviews. 

In both rounds, over the course of an hour, the interview proceeded with questions in five 

major sections: First, there was a warm-up section during which participants were asked about 

their experience with investments, which allowed moderators to ask general questions and 

establish rapport. Second, participants were asked about their experiences with annuities and 

RILAs, if any. All participants viewed a short introduction to RILAs. Third, participants were 

shown select rows of a hypothetical KIT, one at a time. They were asked to read the displayed

text, identify areas of confusion, and discuss how that information affected their interest in 

RILAs. The rows and content of the KITs differed in the two rounds of interviews, to cover 

more topics across both rounds. Fourth, participants were asked to apply their knowledge of 

RILAs by assessing the appropriateness of RILAs for hypothetical investors (both rounds), 

14 Because of the relative newness of RILA products, their relatively narrow niche, the timeframe available for research, and the potential for 

misidentification during the recruitment process, the research team did not deem it feasible or favorable to focus on current RILA owners. To 

maintain focus on disclosure development, our intention was to focus on potential purchasers rather than others who might have substantial preexisting knowledge of the products. 15 Respondents had the following demographic characteristics: 11 were male and 9 female, the average age was 50.9, 11 were white, 4 were 

Hispanic, 3 were Black, 1 was Native American, and 1 was Asian. 12 were currently annuity owners, and 8 were currently or planning to shop 

for annuities. 5 of 20 either reported over $1 million in retirement assets or stated that they were very knowledgeable about personal finances.
Investor Testing Report on Registered Index-Linked Annuities | 36

definitions of key terms (Round 2 only), and tradeoffs between investing in a RILA and in a 

stock market index (Round 2 only). The final section allowed for any final comments and 

reminded participants that moderators had presented only limited information about RILAs, so 

more investigation would be necessary before making an investment decision regarding those 

products. Our interview guides were reviewed and approved by an Institutional Review Board

(IRB) that reviews research to ensure that research plans are ethical and follow applicable 

policies.

During each round, pilot interviews were conducted to ensure that the protocol 

functioned well and to train the moderators on the interview guide. All moderators had

interviewing and moderating training through either the RIVA Training Institute or the 

University of Maryland Joint Program in Survey Methodology (JPSM). Round 1 interviews took 

place between March 27th, 2023 and March 31st, 2023, with Round 2 interviews taking place 

from June 5th, 2023 to June 16th, 2023.

Limitations

Note that our qualitative research had several limitations. Due to time limitations, we

asked participants to focus on specific information about RILAs. Thus, we were not able to 

ascertain if participants would have been able to identify and apply key information from a 

longer KIT document that might include many pages. In Round 1, participants received an

informative introduction to RILAs, which may have increased their RILA understanding 

compared to a typical investor. However, in Round 2, participants received different information 

about RILAs to keep our focus on participants’ interpretation of the material directly presented in 

the KIT. In both rounds, the interview participants were neither nationally representative nor 

randomly selected; thus, the findings should not be considered representative of all consumers or 

used for statistical analysis. 

Results From Round 1

In Round 1, participants discussed four rows from a hypothetical KIT: “What is the 

purpose of the contract?” “Who may the contract be appropriate for?” “Are there charges for 

early withdrawal from the contract?” and “Are there other penalties for mid-term withdrawals?”

(See Table B1 in Appendix B.) For the purposes of this report, we highlight three broad 

categories of results from these interviews: (1) whether participants could identify when a RILA

product may be appropriate, (2) difficulties with key RILA terminology, and (3) perceived 

limited information. 

We used scenarios to assess whether participants could determine the appropriateness of 

a RILA product for hypothetical investors (see Appendix B for scenario text). The scenarios 

attempted to emphasize a mix of RILA product features, including their potential benefits, 

potential charges and penalties for hypothetical purchasers, and other factors. In many, but not 

all cases, participants were able to identify the appropriateness of a RILA for investors in the 
Investor Testing Report on Registered Index-Linked Annuities | 37

scenarios, although some scenarios were easier than others. In their explanations, participants 

often identified only a single charge or penalty that would apply (i.e., only surrender charge, 

early withdrawal tax penalty, or Interim Value Adjustment), rather than all the losses that would 

occur (e.g., one scenario involved all three charges). This finding raises the concern that 

participants demonstrated only a partial understanding of the relevant RILA penalties and how to 

quantify them. However, for the most part, participants recognized that there would be penalties 

associated with early withdrawal and that a RILA product would not be appropriate for people 

with a short-term investment horizon or the potential need for liquidity.

Participants struggled to explain and understand key jargon used to describe RILAs. 

Many reported that specific terminology is confusing, including language such as “index,”

“Interim Value Adjustment,” and “buffer.” In particular, the concept of the investment term 

seemed to create significant and highly consequential confusion for participants. Several 

participants seemed to equate “investment term” or “term” with the length of the insurance 

contract rather than the length of the investment product options within the RILA contract; in 

other words, they thought that they could liquidate their investment and get cash back after only 

1 year without incurring any penalties. When discussing the Interim Value Adjustment and 

buffer, participants generally reported that they did not understand these concepts. Overall, this 

difficulty with RILA-related jargon is consistent with past research showing that investment 

jargon can engender significant confusion in participants (Chin et al., 2023).

Several participants said they would need to do more research or would need more 

specific information to make a decision about investing in a RILA. Areas of interest included 

more specific information about the index being used; the amount of the cap, floor, or buffer; or 

a graph or chart that might help them understand the concept of a floor and buffer.

These Round 1 results informed several modifications to the hypothetical KIT and 

follow-up research questions for quantitative testing. In particular, before Round 2, the KIT was 

modified to use the phrase “investment term” rather than “term,” to include a table to show how 

the investment term interacts with the contract length, to examine various graphs to provide more 

information about RILA insurance features like buffers, and to include expanded links to 

additional information to indicate that more information could be available. As we discuss

below, we chose to include questions about key areas of confusion, such as the long-term nature 

of RILAs and RILA jargon, in quantitative testing.

Results From Round 2

In Round 2, participants discussed five rows from the KIT: “What is the purpose of the 

contract?” “What is the time period for measuring growth (or loss) on my contract value?” “Are 

there charges for early withdrawal from the contract?” “Are there other penalties for mid-term 

withdrawals?” and “Is there a risk of loss from poor market performance?” (See Appendix C.)

Three of these topics overlapped with those covered in Round 1, but the presentation and content 
Investor Testing Report on Registered Index-Linked Annuities | 38

of the information differed based on modifications to the KIT made between the rounds. The 

results from Round 2 of the qualitative testing fall into five broad categories: (1) concern about 

penalties stemming from mid-term withdrawals, (2) understanding the long-run nature of RILAs,

(3) difficulties with key RILA terminology, (4) perceived limited information, and (5) difficulties 

with introductory information about RILAs. 

Regarding charges, the KIT that was tested in Round 2 emphasized that significant 

charges can be incurred if money is withdrawn mid-term. Nearly all participants were concerned 

about the “up to 90%” Interim Value Adjustment that was displayed in the KIT (row titled 

“Interim Value Adjustment maximum loss potential (% of contract value)” (see Table C1 in

Appendix C). Participants indicated wanting to understand this text better and wanting more 

information about how this value is calculated, as many expressed incredulity and could not 

comprehend how an investment could have such a large loss or large charges associated with it. 

However, attention to the amount of the charge was not an indicator of understanding. At the 

time it was initially introduced, participants indicated being confused, and later in the interview, 

they were generally not able to describe the Interim Value Adjustment.

Attention to the Interim Value Adjustment affected interview participants’ understanding 

of the long-term nature of RILAs. In particular, after carefully reviewing the text about Interim 

Value Adjustments, the 90% potential loss was so salient that most participants were able to 

identify that a RILA is not a short-term investment and should only be used if an investor will 

not make early withdrawals. This observation was particularly evident in the discussion of the 

scenarios.

At the same time, participants indicated that they did not understand other contract 

details. As mentioned above, several participants in Round 2 were significantly more 

sophisticated than the average investor, having worked in the field of finance, and several were 

high net-worth individuals. Even these participants struggled to correctly apply the concepts 

discussed in the KIT. 

With the goal of helping potential investors better understand key concepts that were 

difficult for Round 1 participants, a table was introduced to illustrate how charges are applied

over the surrender period of the contract, the difference between the investment term and the 

contract length, and how charges could vary over the course of the contract. This table was 

confusing for even the most sophisticated investors, as participants could not understand the 

potential total losses from charges and penalties nor distinguish between surrender charges and 

the Interim Value Adjustment.

16 If participants were able to define the Interim Value 

Adjustment when they initially saw they table, they were not necessarily able to define the 

concept later in the interview or to apply their knowledge. Round 2 also introduced several 

16 It is possible that alternative visualizations could yield different results; in these interviews, we only tested a single design.
Investor Testing Report on Registered Index-Linked Annuities | 39

graphics to illustrate how a buffer works. Most participants were unable to correctly apply the 

definition of the buffer.

Participants indicated wanting information that was not part of the tested KIT rows, such 

as the specific investment index options. This desire may have been an artifact of the more 

limited information that was provided to participants about RILAs before viewing the KIT in

Round 2 compared to in Round 1. Some of the more sophisticated participants said they wanted 

information about past RILA returns. Several participants wanted additional information about 

other fees that might be charged. In this round, we did not focus on caps on gains, which may 

have contributed to some participants wondering what other fees there might be, with some 

participants noting that the insurance company has to make money somehow. Some participants

noted that if they needed additional information they would turn to a financial professional, 

which speaks to the importance of understanding the incentives associated with sales of RILAs 

and any potential conflicts of interest.

To introduce participants to the RILAs, all interviews contained a short explanation of 

RILA contracts (see Appendix C). The introduction to the RILA contract that was provided in 

the interviews did not always help people understand the purpose of a RILA or who a RILA 

might be appropriate for. In particular, many participants did not seem to understand that RILAs 

are intended as a retirement savings vehicle and that there may be tax penalties for withdrawal 

before age 591⁄2. To further explore how introductory information may help individuals 

understand RILAs, we return to this question in the quantitative testing. 

Summary of Qualitative Testing

Qualitative testing was instrumental to the research team’s ability to understand 

participants’ responses to the RILA products and the provision of information about the 

products. Across both rounds of interviews, we found that many interview participants struggled 

to understand the details of the RILA contract presented in the hypothetical KIT. These 

difficulties manifested both in their explanations of what they read and in how they applied the 

information to the hypothetical scenarios. Often, participants reported that the information was 

clear, but when they were asked to explain or apply that information later in the interviews, their 

responses suggested incorrect interpretations. Specific terms such as “index,” “buffer,” and 

“Interim Value Adjustment” were often cited as confusing, suggesting that RILA jargon causes 

difficulties but also that the underlying concepts also create significant challenges. Furthermore, 

many participants did not seem to understand the distinction between the investment term and 

the contract length, which seemed to create additional downstream confusion: Participants

appeared to carry forward their mistaken understanding of contract length to their interpretations 

of how insurance provisions or other product features work. However, after being asked to 

concentrate on Interim Value Adjustments, they were able to identify that a RILA is not an 

appropriate option for someone with a short-term investment horizon or for someone who may

need more liquidity. Across both rounds, many participants noted that they would need more 
Investor Testing Report on Registered Index-Linked Annuities | 40

information to fully understand the product. The results of the qualitative interviews helped 

inform the design of the quantitative study.
Investor Testing Report on Registered Index-Linked Annuities | 41

6. Quantitative Testing

Our quantitative testing was designed to assess whether the organization of the 

hypothetical KIT and other information provided to participants impacts their comprehension of 

the disclosed information. In particular, we sought to answer the following research questions:

(1) Does providing introductory text to a disclosure impact comprehension of the disclosed 

information? and (2) Does the structure of the topic headings, either in a question-and-answer

(Q&A) format or statement format impact comprehension? 

Interest in these research areas arose because of the overall complexity of the products, 

the commensurate complexity of the KIT, and the findings of the foregoing analysis—

particularly our qualitative inquiry. Among other things, the qualitative research suggested 

substantial difficulty in understanding basic product features, jargon, more technically 

challenging features (e.g., definitions of insurance features and charges), and the implications of 

such features in terms of risk, payouts, and other factors. The introduction variants we tested

were informed by the qualitative interviews, during which we found that the KIT did not always 

provide participants with sufficient background information to understand RILAs. The Q&A 

versus statement format was intended to test whether framing information as a question would 

help participants identify and locate relevant information. Because of the difficulty of the 

material, our design also included various alternative incentives to test whether incentivizing 

people to read more carefully could improve comprehension.

17

Methods

Sample

We had 3,078 participants start the survey from the Prodege opt-in panel, and 2,564 

completed it.

18 An additional 42 participants were excluded because they had the same IP 

address as other participants.

19 The quantitative testing was fielded from June 16 to June 23, 

2023. The average response time was 14.7 minutes. Participants were compensated for their 

time, with compensation varying from $3 to $12, depending on whether the respondent was in a 

particularly hard-to-reach group based on annuity ownership and financial experience, as well as 

incentives provided based on the number of questions they answered correctly. The survey 

targeted participants who were more likely to have some experience with financial products. 

Participants consented to participate in the survey panel. Our experimental survey design was 

reviewed and approved by an Institutional Review Board (IRB).

Table 4 summarizes the demographic characteristics of our sample, and Table 5

summarizes the sample’s financial characteristics. Compared to the overall U.S. population, our 

17 Although such incentives are unlikely to be contemplated as a policy instrument, they enable us to gain some insight on the burden associated 

with reading complex RILA disclosures. Furthermore, these incentives can help assess whether low levels of comprehension measured in a 

survey occur because the material is too difficult or because participants are not motivated to attend to the details.

18 For more information on the Prodege panel, see https://www.prodege.com/. 19 Non-independent observations, such as those arising from a single participant completing the study twice, violates one of the assumptions of 

ordinary least squares regression analysis used below.
Investor Testing Report on Registered Index-Linked Annuities | 42

sample was more highly educated, more likely to be female, older, and more likely to be White.

Given the potential difficulty in recruiting annuity owners—a particular group of interest—we 

did not formally target demographic representativeness in this study. We asked additional 

financial background questions to measure the financial characteristics shown in Table 5. 

Approximately 68.4% of our sample had income under $100,000 per year, 25.5% had income 

between $100,000 and $200,000, and 6.1% had income greater than $200,000. Approximately 

7% of our sample reported being in debt, 12% reported being neither in debt nor having any 

assets, 22% reported having positive but less than $100,000 in assets, 43% reported having assets 

between $100,000 and $1,000,000, and 16% reported having assets greater than $1,000,000. We 

found that 62% of our sample were classified as an Independent Investor, meaning that they held 

some financial assets outside of a retirement account; 31% of our sample were classified as a 

Retirement-Only Investor, meaning that they held financial assets only in a retirement account;

and approximately 7% were Non-Investors. 

Table 4. Summary of Demographic Sample Characteristics.

Count (%)

Overall 2,522

Education (%)

 BA or above 1,710 (68.1%)

 Some college 456 (18.2%)

 High school or equivalent 308 (12.3%)

 No high school diploma 36 (1.4%)

 Missing 12 (0.5%)

Gender (%)

 Female 1,492 (62.2%)

 Male 900 (37.5%)

 Nonbinary 7 (0.3%)

 Missing 123 (4.9%)

Age (mean [SD]) 57.79 (13.83)

Race and Ethnicity (%)

 American Indian or Alaska Native 11 (0.5%)

 Asian 117 (4.9%)

 Black or African American 155 (6.5%)

 Hispanic 143 (6.0%)

 Pacific Islander 2 (0.1%)

 White 1,882 (78.5%)

 Some other race 26 (1.1%)

 Prefer not to answer 60 (2.5%)

 Missing 126 (5.0%)
Investor Testing Report on Registered Index-Linked Annuities | 43

Table 5. Summary of Sample Financial Characteristics.

Count (%)

Household Income (%)

 <$5,000 28 (1.1%)

 $5K –$14,999 34 (1.3%)

 $15K–$24,999 124 (4.9%)

 $25K–$39,999 314 (12.5%)

 $40K–$59,999 417 (16.5%)

 $60K–$74,999 354 (14.0%)

 $75K–$99,999 453 (18.0%)

 $100K–$149,999 459 (18.2%)

 $150K–$174,999 108 (4.3%)

 $175K–$199,999 77 (3.1%)

 > = $200K 154 (6.1%)

Net Worth (%)

 -$75,001 or more debt 12 (0.6%)

 -$50,001, to -$75K 11 (0.5%)

 -$40,001 to -$50K 8 (0.4%)

 -$30,001 to -$40K 6 (0.3%)

 -$20,001 to -$30K 13 (0.6%)

 -$10,001 to -$20K 38 (1.8%)

 -$5,001 to -$10K 37 (1.8%)

 -$1 to -$5K 22 (1.1%)

 0 256 (12.3%)

 $1 to $10K 103 (4.9%)

 $10,001 to $50K 182 (8.7%)

 $50,001 to $100K 168 (8.1%)

 $100,001 to $200K 194 (9.3%)

 $200,001 to $400K 239 (11.5%)

 $400,001 to $650K 218 (10.5%)

 $650,001 to $1M 248 (11.9%)

 $1,000,001 to $2.5M 226 (10.9%)

 > $2.5M 100 (4.8%)

 Missing 441 (17.5%)

Investor Type (%)

 Independent Investor 1,564 (62.0%)

 Retirement-Only Investor 783 (31.0%)

 Non-Investor 175 (6.9%)

Owns Annuity (%)

 Yes 1063 (42.1%)

 No 1,458 (57.8%)

Missing 1 (0.0%)

Note. The count of participants in each category is followed by the percentage of participants by category in parentheses. 

Historical Prodege screening variables were used to target an oversample of annuity owners. Annuity ownership and investor 

type classifications were constructed using survey measures within our study. 

Study Design and Overview

To examine our research questions, we employed a 4x2x2 between-subjects experimental 

design. We included four different introductions to RILAs, two formats for the KIT, and two

variants of variable compensation. Our four introductions were designed to mimic different 
Investor Testing Report on Registered Index-Linked Annuities | 44

information that individuals might be presented with about RILAs before reading the KIT. The 

first introduction was a control scenario in which participants were given no information about 

RILAs, which provided a baseline comparator for the other introductions (“control”). The 

second introduction was designed to introduce participants to key terminology and was similar to 

the introduction used during Round 2 of the qualitative interviews (“key terms”). The third 

introduction described potential benefits of owning a RILA, was informed by our review of the 

marketing materials provided to consumers, and used similar wording to the wording that a 

consumer might encounter while shopping for a RILA (“benefits only”). The fourth introduction 

was designed to present participants with information that could influence the decision to 

purchase a RILA, focusing on conditions that would help a consumer identify whether a RILA is

appropriate for them (“decision focus”). The decision focus introduction was intended to 

provide a jargon-free introduction informed by the qualitative interviews, during which we found 

that participants were hampered by jargon and often did not seem to understand basic features of 

RILAs such as their use as a retirement investment, or other aspects relevant to when RILAs may 

or may not be an appropriate investment.

After seeing the introduction, participants were presented with one of two sets of KIT 

rows, with each row presented one at a time. In the first set, each row label of the KIT was 

framed as a question, whereas in the second set, the information was presented with each row 

labeled as a statement. The material in the KITs was identical other than the Q&A or statement 

format (see Appendix D for materials).

Next, participants answered a series of questions to gauge their understanding of the 

presented material and its implications, and their ability to situationally apply the material in 

settings that approximated key aspects of RILA decision making. Participants were also 

randomly assigned to various incentive conditions. The study concluded by asking participants 

for background information about themselves, such as demographics and financial asset

ownership (including annuities). Throughout the survey, we measured the amount of time spent 

on each page in the background.

Comprehension Measures

Our main outcome of interest in this study was the comprehension of key concepts about 

RILAs. Academic literature suggests that comprehension can be classified into multiple skills, 

including basic comprehension and more advanced application of that knowledge (Bloom et al.,

1956); existing financial disclosure and financial literacy research also makes distinctions 

between types of knowledge (e.g., Chin & Bruine de Bruin, 2019; Chin et al., 2022b; Scholl &

Fontes, 2022; Warmath & Zimmerman, 2019). As such, we made sure to include both factual 

statements about RILA features and scenario-based questions that required participants to make 

inferences about how RILAs would work for investors in certain situations. We included 

multiple choice, true–false, and check-all-that-apply questions. The scenarios used in the testing

were based on those shown to participants in our qualitative interviews.
Investor Testing Report on Registered Index-Linked Annuities | 45

Our primary overall comprehension score is the percentage of comprehension questions 

answered correctly. For the true–false questions, participants earned one point for correctly 

selecting true or false. Participants could also select “Don’t know,” which was always scored as 

incorrect. The check-all-that-apply questions were split into their individual response options

and scored one or zero for each possible response, due to the difficulty of these questions. For 

example, a choose-all-that-apply question asking whether Interim Value Adjustments, surrender 

charges, rollover fees, tax penalties, or none of the above applied in a certain scenario would be 

recoded into five separate items. Participants could earn one point for each item by correctly

marking whether the charge, penalty, or fee applied. Incorrect responses, either for selecting the 

wrong response or leaving the answer blank, would result in zero points for that item. This 

recoding resulted in a total of 44 points that a participant could earn across all the comprehension 

questions. Total points were then converted into a percentage of total points that a participant

earned. Given this recoding, someone guessing randomly among the response options would 

expect to earn 22 points, or 50% of the total, on our overall comprehension measure.

Additionally, we created different sub-scores to examine four conceptual areas: (1) the 

appropriateness of RILAs for investors based on their characteristics; (2) How a RILA Works;

(3) how the charges and penalties associated with RILAs affect liquidity; and (4) the insurance 

protection offered by RILAs. 

Moderating Characteristics

We considered several moderating variables: subjective financial literacy, investor status, 

and ownership of an annuity. The subjective financial literacy scale was composed of three selfreported items measured on a 5-point scale: ability to deal with day-to-day financial matters, 

assessment of math ability, and proficiency in dealing with saving and investing financial 

matters. All three questions had outcomes from Strongly disagree to Strongly agree, with a 

Don’t know option. Investor status questions asked participants about their ownership of 

employer-sponsored retirement plans, then outside-employer retirement accounts, and finally 

investments outside of any retirement accounts, such as a non-retirement brokerage or advisory 

account (following the method discussed in Chin et al., 2022a; Chin et al., 2023). Participants 

were directly asked if they owned an annuity, with some details of annuity products provided to 

make the question easier to answer. If participants stated that they own an annuity, they were 

asked which type of annuity (fixed, immediate, deferred, RILA, or I don’t know).

Limitations

There were several limitations to our study and analysis. First, we used an opt-in panel,

which did not allow us to make generalized statements about the comprehension of the 

population as a whole. We prioritized distinguishing between annuity owners and non-annuity 

owners and needed to use a panel large enough to target a significant number of annuity owners.

Second, we were limited in the disclosure documents that we could test based on both policy 

priorities and our sample size. Alternative variations to the presented disclosures could have 

impacted comprehension differently. Third, multiple rounds of quantitative testing were 
Investor Testing Report on Registered Index-Linked Annuities | 46

infeasible because of time limitations and the need to incorporate qualitative testing before

designing the quantitative instrument. Best practices for research dictate starting with qualitative 

testing to discuss RILAs with participants and to understand initial reactions to the disclosures.

Fourth, for practical reasons, we were unable to study the impact of a full KIT, which would 

include many more rows and pages. Our study instrument needed to target an average response 

time of 15 minutes for data-quality reasons. A KIT mock-up that included full information could 

have taken the full 15 minutes (or more) to review in detail, leaving no time available for the 

measurement of comprehension and application of knowledge. Fifth, as a new disclosure 

proposal, the KIT that was used was not a KIT for a real RILA product. Product providers 

generally have discretion in what information is presented, and as such, insurance companies 

might choose to design KITs that differ substantially from what we presented. Sixth, our main 

interest was to understand the information presented rather than all possible information about 

investing and RILAs that may be important. Although comprehension is crucial for decision

making, we did not measure decision-making quality related to RILAs (neither regarding the 

choice to purchase a RILA nor which insurance features to select). Finally, future product 

innovations may change which features of a RILA have the largest impact on investor outcomes, 

making additional and ongoing research important for knowing how disclosures convey the most 

decision-relevant information.

Results

Across all questions and participants, the average percentage of questions scored as 

answered correctly was 58% (see Table 6 for average sub-scores), which is statistically 

significantly higher than 50% (one sample proportion test, p < 0.001), the score that would occur 

through random guessing on true/false questions. To be considered fully informed, however, a

purchaser should arguably be able to answer a substantially higher percentage of the 

comprehension questions. Furthermore, as shown in Tables 7–10, there was significant variation 

in correct responses by question. For example, only 12.6% of participants correctly identified in 

the How a RILA Works sub-score that RILAs are investment vehicles that are intended purely as 

retirement savings vehicles rather than for achieving other goals (e.g., education and home 

purchasing). Only 21% of participants correctly identified that a floor applies to a RILA 

investment option rather than to the RILA contract overall (see Table 9). In contrast, 80.7% of 

participants correctly identified that if an investor purchases a RILA, they cannot access their

money whenever they need it at no cost (see Table 10).

Table 6. Comprehension Overall and by Sub-score.

Mean (SD)

Overall comprehension 58% (13)

Appropriateness sub-score 57% (28)

How RILA Works sub-score 49% (20)

Insurance sub-score 57% (16)

Liquidity sub-score 62% (14)
Investor Testing Report on Registered Index-Linked Annuities | 47

Testing Impacts

We estimated the impacts of the different experimental factors on our main outcome 

variables: overall comprehension and four separate conceptual sub-scores.

20 Full question text,

categories, and jargon classification are presented in Tables 7–10. To increase interpretability, 

results are reported for analyses that did not include interaction terms between all experimental 

factors but controlled for all of them using ordinary least squares (OLS) regression. The results 

focus on both the relative differences between different experimental factors and the absolute 

levels of comprehension, since comprehension is crucial for informed decision making. For most 

of the analyses and unless otherwise specified, the control group was the group assigned to 

receive no introduction (i.e., control introduction), the Non-Q&A KIT format, and no variable 

incentives.

Table 7. Appropriateness Sub-score.

Question Text Jargon Average 

Score

Pat and Jean are in their early 40s. Their daughter is in seventh grade and will go to college 

in six years. They have saved some money for college but are worried it won’t be enough, 

so they would like to invest and make it grow. At the same time, they are not confident 

about the stock market and are worried about losses.

No 48.7%

Taylor is 50 years old with a steady job. She has a retirement account with stocks and 

bonds that she started 30 years ago. Taylor doesn’t plan to use any of that money before 

retirement. However, she is still worried about having enough given the rising cost of living 

and the chance that the stock market could face a major drop in five or six years

No 54.1%

Uncle Bob is 85 years old. He lives on his own, but expects to move to an assisted living 

community in five years because he is increasingly forgetful. Assisted living is expensive, 

and Bob is not sure if he’ll have enough money. He currently has some money in a 

retirement account in very low-risk investments. His financial professional recommended a 

RILA to him with a 5-year investment term. Uncle Bob thinks this will allow for some 

stock market gains, with limited downside risk.

Yes 57.3%

John is 55 years old and does not think he will ever have enough money to retire. He 

doesn’t want to risk losses on his investments because if an emergency comes up, he will 

need to withdraw that money and use it immediately. Right now he has a small, 

conservative portfolio with mostly bonds.

No 69.1%

Note. Question text includes the type of question: True–false questions are labelled (T/F), multiple choice questions are labelled 

(M/C), and choose-all-that-apply questions are labeled (CATA), with the individual option listed after the colon (e.g., CATA: Cap 

Rate). Jargon indicates whether the question used jargon specific to RILAs. The average score is the percentage of all 

participants who got the question correct. 

20 There were additional preregistered analyses, which occasionally had different levels of significance, but the magnitude of the differences 

between the testing impacts was quite small. The largest difference in testing effects between the outcome variables analyzed here and the 

preregistered analyses was about 2 percentage points, which is small enough not to change the overall substantive conclusions.
Investor Testing Report on Registered Index-Linked Annuities | 48

Table 8. How a RILA Works Sub-score.

Question Text Jargon Average 

Score

RILAs provide an opportunity to save for a variety of investing goals (for example 

education, homebuying, or retirement). (T/F) No 12.6%

The investment term is the life of your contract with the insurance company. (T/F) Yes 16.1%

At the end of the initial RILA investment term, you will receive a check from the insurance 

for the current value of your investment. (T/F) Yes 32.9%

RILAs are among the safest annuity products one can buy. (T/F) No 46.5%

Your investment options are guaranteed to stay the same even if you stay in a RILA for 

multiple terms. (T/F) Yes 51.5%

RILAs provide tax advantages for retirement savers. (T/F) No 58.6%

A RILA does not have the same limits on contributions as a 401(k) or IRA. (T/F) No 59.1%

RILAs cannot lose money. (T/F) No 82.6%

RILAs are a long-term investment. (T/F) No 83.9%

Note. Question text includes the type of question: True–false questions are labelled (T/F), multiple choice questions are labelled 

(M/C), and choose-all-that-apply questions are labeled (CATA), with the individual option listed after the colon (e.g., CATA: Cap 

Rate). Jargon indicates whether the question used jargon specific to RILAs. The average score is the percentage of all 

participants who got the question correct.

Table 9. Insurance Sub-score.

Question Text Jargon Average 

Score

3 years ago, Sally invested $10,000 in a RILA investment product. The investment she 

selected is linked to the S&P 500 and has a 3-year investment term. There is a cap rate of 

10%, and a buffer of 10%. If the S&P 500 decreased by an average annual rate of 4% per 

year, for a total loss of 12.5% over 3 years, how much would Sally’s contract be worth at the 

end of the term? (MC)

Yes 13.4%

What features in RILAs reduce potential gains from the market? (CATA: Participation Rate) Yes 16.2%

If you own a RILA with a 10% floor, you can lose a maximum of 10% over the time that 

you are invested in the annuity. (T/F) Yes 20.9%

What features in RILAs reduce potential losses from market declines? (CATA: Floor) Yes 51.6%

What features in RILAs reduce potential gains from the market? (CATA: Cap Rate) Yes 52.1%

What features in RILAs reduce potential losses from market declines? (CATA: Buffer) Yes 54.4%

A RILA may limit your investment gains compared to investing in a fund that tracks the 

same market index. (T/F) No 62.6%

What features in RILAs reduce potential gains from the market? (CATA: Buffer) Yes 76.8%

What features in RILAs reduce potential gains from the market? (CATA: Protection Level) Yes 81.3%

What features in RILAs reduce potential gains from the market? (CATA: None of the above) Yes 83.7%

What features in RILAs reduce potential losses from market declines? (CATA: None of the 

above) Yes 85.2%

What features in RILAs reduce potential losses from market declines? (CATA: Ceiling) Yes 87.2%

Note. Question text includes the type of question: True–false questions are labelled (T/F) and choose-all-that-apply questions are 

labeled (CATA), with the individual option listed after the colon (e.g., CATA: Cap Rate). Jargon indicates whether the question 

used jargon specific to RILAs. The average score is the percentage of all participants who got the question correct.
Investor Testing Report on Registered Index-Linked Annuities | 49

Table 10. Liquidity Sub-score.

Question Text Jargon Average 

Score

At the end of the investment term, you may withdraw your money without penalty. (T/F) Yes 17.5%

If she had to pay the highest possible fees, about how much should she expect to receive if 

she were to pull out all of her money today? (MC) No 20.2%

If your RILA investment has reached the end of its term, which of the following penalties 

could apply if you withdraw your money (CATA: Surrender charges) Yes 31.5%

To avoid paying penalties on withdrawals, you may need to reinvest your money for several 

investment terms. (T/F) Yes 36.3%

Tori is 51 years old and has had a RILA for 15 years. She most recently contributed money 

three years ago. Recently, there was a family emergency, and she needs access to the money 

now. (CATA: IVA)

Yes 45.4%

Tori is 51 years old and has had a RILA for 15 years. She most recently contributed money 

three years ago. Recently, there was a family emergency, and she needs access to the money 

now. (CATA: Tax Penalties)

Yes 51.3%

Surrender charges, interim value adjustments and tax penalties are all waived if the investor 

is over age 59.5. (T/F) Yes 55.9%

An investor who is 85 years old faces no penalties for withdrawing funds. (T/F) No 57.1%

If your RILA investment has reached the end of its term, which of the following penalties 

could apply if you withdraw your money (CATA: None of the above) Yes 58.4%

If the surrender period is 9 years, the surrender charge applies only if you withdraw money 

within 9 years of your last payment. (T/F) Yes 67.8%

Tori is 51 years old and has had a RILA for 15 years. She most recently contributed money 

three years ago. Recently, there was a family emergency, and she needs access to the money 

now. (CATA: Surrender)

Yes 68.4%

An investor who is 58 years old faces no tax penalty for withdrawing funds. (T/F) No 73.7%

If your RILA investment has reached the end of its term, which of the following penalties 

could apply if you withdraw your money (CATA: Transfer fees) Yes 79.1%

If your RILA investment has reached the end of its term, which of the following penalties 

could apply if you withdraw your money (CATA: IVA) Yes 79.4%

If you invest in a RILA, you can access your money whenever you need it at no cost. (T/F) No 80.7%

Tori is 51 years old and has had a RILA for 15 years. She most recently contributed money 

three years ago. Recently, there was a family emergency, and she needs access to the money 

now. (CATA: Transfer fees)

Yes 85.1%

If your RILA investment has reached the end of its term, which of the following penalties 

could apply if you withdraw your money (CATA: Rollover fees) Yes 87.5%

Tori is 51 years old and has had a RILA for 15 years. She most recently contributed money 

three years ago. Recently, there was a family emergency, and she needs access to the money 

now. (CATA: None of the above)

Yes 93%

Tori is 51 years old and has had a RILA for 15 years. She most recently contributed money 

three years ago. Recently, there was a family emergency, and she needs access to the money 

now. (CATA: Rollover fees)

Yes 93.5%

Note. Question text includes the type of question: True–false questions are labelled (T/F), multiple choice questions are labelled 

(M/C), and choose-all-that-apply questions are labeled (CATA), with the individual option listed after the colon (e.g., CATA: Cap 

Rate). Jargon indicates whether the question used jargon specific to RILAs. The average score is the percentage of all 

participants who got the question correct.
Investor Testing Report on Registered Index-Linked Annuities | 50

In Table 11, we compare results across treatment arms for overall comprehension scores. 

The different introductions to the KIT rows did not have a significant impact on this measure (all 

p values > 0.21). Neither the Q&A format nor the bonus payments resulted in significantly 

different average comprehension (KIT structure: p = 0.37; bonus payments: p = .24). 

Table 11. Summary of Results Across Treatment Arms.

Testing Condition

Overall Comprehension

Mean % Correct (SD)

Introduction

 Decision focus 60.2 (13.7)

 Key terms 58.5 (14.3)

 Benefits only 58.7 (12.9)

 Control 59.1 (12)

KIT Structure

 Non-Q&A 58.8 (13.4)

 Q&A 59.4 (13.1)

Bonus Payments

 No 59.5 (13.4)

 Yes 58.7 (13)

When splitting out comprehension by the four conceptual sub-scores (see Tables 7–10 for 

question classification), we found a few significant differences between the treatment conditions, 

when controlling for the other testing factors, but these were relatively small in magnitude (see 

Table 12 for condition means). For the Appropriateness sub-score analyses, we changed the 

reference category to be the decision focus introduction without the Q&A structure and no 

variable incentives. The decision focus introduction was intended to explain the conditions that

would likely make a RILA an appropriate choice and to explain the basic structural features and 

key aspects of the contract without using jargon. As such, the other introductions were expected 

to lead to worse comprehension of this specific conceptual area. Although participants in the key 

terms introduction (4.5 percentage-point decrease; p = 0.005) and the control condition (3.3 

percentage-point decrease; p = 0.04) fared significantly worse than those in the decision focus 

introduction condition, the difference between the decision focus introduction and the benefitsonly introduction conditions demonstrated only marginally statistically significant differences 

(3.1 percentage-point decrease; p = 0.053). These results suggest the decision focus 

introduction shows some promise, although the overall levels of comprehension leave room for 

improvement. The Q&A versus Non-Q&A variations that were tested on the KIT did not 

significantly affect comprehension on the Appropriateness sub-score (0.2 percentage points; 

p = 0.88), nor did the variable incentives (p = 0.22).
Investor Testing Report on Registered Index-Linked Annuities | 51

Table 12. Summary of Results by Sub-Score and Treatment Arms.

Sub-Score Comprehension (Mean % Correct [SD])

Testing Condition Appropriateness How a RILA Works Liquidity Insurance

Introduction

 Decision focus 60.1 (27.7) 52.9 (20.7) 62.7 (13.9) 56.6 (15.7)

 Key terms 55.5 (28.1) 48.0 (20.5) 61.1 (15.1) 58.4 (16.3)

 Benefits only 57.0 (28.1) 48.5 (19.3) 62.2 (13.9) 56.6 (15.1)

 None 56.8 (28.4) 48.3 (18) 62.9 (13.2) 56.9 (15.5)

KIT Structure

 Non-Q&A 57.1 (27.9) 48.4 (19.4) 62.1 (14.4) 56.9 (15.8)

 Q&A 57.4 (28.4) 50.2 (20) 62.3 (13.7) 57.3 (15.6)

Bonus Payments

 No 58.0 (28.2) 49.9 (19.8) 62.2 (14.1) 57.8 (15.8)

 Yes 56.5 (28.1) 48.7 (19.6) 62.2 (14) 56.4 (15.5)

For the How a RILA Works sub-score, overall comprehension was about 49%, which is 

not different from what we would expect if everyone randomly guessed on these questions (one 

sample proportion test; p = 0.08). We analyzed comprehension on this sub-score using the 

typical analysis structure, where the control introduction was the reference category in the 

regression. Using that structure, we again observed higher scores for those who received the 

decision focus introduction compared to the control introduction (by 4.4 percentage points;

p < 0.001). There were no differences between the control introduction and the other two 

introductions (p values > .72). In addition, participants who received the Q&A format

demonstrated higher scores (by 1.6 percentage points [p = 0.04]) than did participants who 

received the Non-Q&A KIT format. Again, the results only represent a slight increase in 

comprehension for participants in the decision focus introduction, but the direction of change 

demonstrates some promise. 

For both the Liquidity and Insurance sub-score, we only saw one significant difference 

for each sub-score. The key terms introduction had significantly lower average comprehension 

on the Liquidity sub-score (1.8 percentage-point decrease, p = 0.025) compared to the control 

introduction. As for the Insurance sub-score, the variable incentive condition had statistically

significantly higher comprehension than the condition without an incentive (1.5 percentage-point 

increase, p = 0.02). These small differences were economically very modest improvements 

given the absolute comprehension levels on these sub-scales.

One potential concern is that the use of jargon inhibits investors’ ability to understand 

RILA investment options and features. To test this hypothesis, we compared how many 

questions participants answered correctly when the questions did or did not include jargon. Our 

experiment was not designed to test this hypothesis; thus, the use of jargon was not randomized 

or balanced within sub-scores, so our results should be considered exploratory analysis. When 

pooling the How a RILA Works questions into groups that did or did not use jargon in the 

question text, we found that the average percentage correct for the questions without jargon was
Investor Testing Report on Registered Index-Linked Annuities | 52

substantially higher (non-jargon average percentage correct = 57.2%; jargon average percentage

correct = 33.5%; paired one-sample t-test p < 0.001). This finding is suggestive evidence that 

jargon may create substantial barriers to comprehension. Additional research on the use of 

jargon in disclosures, particularly for such a technical product, is necessary to understand

potential negative effects on comprehension and associated remedies (see Chin et al., 2023 for 

further discussion).

Subgroup Analysis

Given the complexity of the RILA products, it is reasonable to believe that more 

sophisticated investors might fare better in terms of comprehension, since they may have more 

background knowledge that could help contextualize the disclosed information. As such, we 

conducted subgroup analysis for four subgroups that were defined according to subjective 

financial literacy levels, investor status, annuity ownership, and our initial recruitment groups.

These analyses were performed by interacting indicator variables for subgroups with the testing 

factors. 

Subjective Financial Literacy 

Three questions on a 5-point scale that captured subjective financial literacy were 

summed together (self-assessed ability to deal with day-to-day financial matters, self-assessed 

math ability, and self-assessed proficiency in dealing with saving and investing financial 

matters), creating a score that ranged from 3 to 15.

21 There was a positive correlation between 

subjective financial literacy and overall comprehension. On average, a 1-point increase in

subjective financial literacy was associated with a 1.3 percentage-point increase in overall 

comprehension (p < 0.001). In other words, for the lowest score, we would predict the average 

comprehension to be 47%, whereas at the median of the scale (12), we would expect average 

comprehension to be 59%. We did not find that treatment effects varied across conditions based 

on subjective financial literacy.

22

Investor Status

Participants were classified into three groups: those with no investments in stocks, bonds, 

mutual funds, or other securities (“Non-Investors”); those with investments exclusively in 

retirement savings accounts (“Retirement Only”); and those with investments outside of 

retirement accounts (“Independent Investors”).

23 In prior research, these categories have been 

associated with increasing financial sophistication, including investment knowledge and trading 

behavior (Chin et al., 2022a; Chin et al., 2023).

21 There were five people in the sample who did not respond to at least one of the three subjective financial literacy questions, so we could not 

calculate a sum score for them; thus, they were excluded from the moderation analysis. 22 Subjective financial literacy was mean centered and interacted with indicator variables for each of the treatment conditions. For example, there 

was an estimated coefficient for the key terms introduction, subjective financial literacy, and the interaction between the key terms introduction

and subjective financial literacy. Interactions between the different testing factors were not included.

23 Note that by definition, the Independent Investors group consisted of individuals who may or may not have retirement savings accounts. This 

is consistent with the definition used in Chin et al., (2021) and Chin et al., (2022). 
Investor Testing Report on Registered Index-Linked Annuities | 53

In the current context, investor types are relevant for two reasons: First, Independent

Investors likely have more knowledge about investing compared to members of the other groups, 

which may make it easier for them to understand the structure and features of RILAs. 

Retirement-Only Investors likely have more knowledge about investing than Non-Investors, but 

less knowledge than Independent Investors. The retirement savings design of RILAs is also 

likely to be more familiar to those with retirement savings (Retirement-Only and some 

Independent Investors). Second, Independent and Retirement-Only Investors are more likely 

than Non-Investors to purchase these products given that they have financial assets (by 

definition), and there are minimum purchase amounts required for RILAs. From an investor 

protection standpoint, it is relevant to understand how comprehension may vary by investor type, 

including when viewing different disclosures. 

On average, Independent Investors had a higher overall comprehension, with an average 

score of 61%, which is 3.4 percentage points higher than the average for the Retirement-Only

Investors (p < 0.001, not controlling for testing factors) and 11.7 percentage points higher than 

the average for the Non-Investors (p < 0.001, not controlling for testing factors). As for 

moderation of the testing effects by investor status, we only saw one significant interaction 

between investor status and the impact of conditions. The effect of the Q&A KIT structure on 

overall comprehension (vs. Non-Q&A structure) was larger for certain groups, estimated at a 0.5 

percentage-point increase for Independent Investors versus a 5.7 percentage-point increase for 

Non-Investors (p = 0.011). None of the other differences by experimental condition were 

significant, nor were the effects different between the Independent Investors and the other two 

groups (Retirement-Only Investors and Non-Investors). Given the number of statistical tests in 

the moderation analyses, this difference would likely not remain significant if we controlled for 

the number of statistical tests conducted.

Annuity Ownership

Participants were classified into two groups: those with annuities and those without

annuities. There was a small but statistically significant difference in the average overall 

comprehension, with annuity owners scoring 2.6 percentage points higher on overall 

comprehension (p < 0.001). We did not see any variation in the effects of the experimental 

conditions for participants of different annuity ownership.

Time

As exploratory analysis, total time spent on the survey and time spent on the four KIT 

rows were compared across the experimental conditions;

24 this analysis helps to understand if the 

introduction and KIT experimental conditions affected efficiency and engagement. The median 

time spent on the KIT rows was 87 seconds, or just shy of one and half minutes, whereas the 

24 Given the distribution of time spent on the whole survey and on all KIT rows, we log-transformed the time outcome (using natural log) to 

better satisfy the modeling assumptions of the OLS regression.
Investor Testing Report on Registered Index-Linked Annuities | 54

median total survey time was 12.4 minutes. Both time spent on the KIT rows and time spent on 

the entire survey were positively correlated with overall comprehension (Figure 15). 

The amount of time spent on the KIT was highly skewed with a median of 87 seconds, 

but a max over 23 minutes.25 As a result, in our analysis we focus on the median and the log of 

KIT time, and in the graph below we use a log scale on the x-axis; we used a simple least squares 

regression to describe the relationship between time spent and the log of the percent of questions 

correct (the log of KIT time better accounts for the dispersion in values). An individual who 

spent the median amount of time on the KIT rows (87 seconds) is associated with an average 

score of 59.7% of the comprehension questions correct. Someone spending an additional 10 

seconds on the KIT rows (97 seconds), is associated with an average score of 60.4% of the 

questions correct. As for total survey time, having spent the median amount of time (12.4

minutes), is associated with an average score of 59.1% of the overall comprehension questions 

correct. Spending 1 minute longer on the entire survey is associated with an average 

comprehension score of 59.8% of the questions correct.

Figure 15. Relationship Between Transformed KIT Time and Comprehension.

Note. Figure 15 shows the relationship between time spent on all KIT rows and overall comprehension. The time spent on all 

KIT rows was log-transformed and then relabeled with the actual number of seconds someone spent on the KIT row pages. The 

blue line is the ordinary least squares regression of the variables plotted.

There was no statistically significant difference across the experimental conditions 

(varying the introduction or KIT format) in the total amount of time spent completing the survey 

25 Given the online format of survey administration, it is possible that the longer survey response times do not reflect active engagement. For 

example, a participant could start a survey and pause to run a household errand. Trimming of observations was considered, but not pursued here 

given that our evidence on timing is purely exploratory. The log transformation helps to deal with some of the resulting time dispersion. 
Investor Testing Report on Registered Index-Linked Annuities | 55

or the total combined time spent in the survey reviewing the respective introduction and the KIT 

rows together (all p values > 0.1). However, time spent on the KIT rows alone (omitting time 

spent on introductions) varied somewhat. Compared to those in the control introduction

condition, participants who saw the decision focus introduction spent less time on the four KIT 

rows (b = -.32, p < 0.001). Similarly, the key terms and benefits-only introductions led to 

significantly less average time spent on the four KIT rows (key terms: b = -.24, p < 0.001, 

benefits only: b = -.16, p = 0.002). Translating these values into seconds, the average time spent 

on the KIT rows in the control introduction condition was about 134 seconds. For the decision 

focus introduction, the average time spent on all KIT rows was approximately 102 seconds. The 

average time spent on all KIT rows was 112 seconds for the key terms introduction and 121 

seconds the benefits-only introduction. Concretely, these results overall mean that on average, 

the reduction in time spent on the KIT rows for the non-control introductions was reallocated to 

time spent on the introductory text.

These results linking time spent and comprehension are descriptive in nature and not 

intended for causal interpretation. Nevertheless, they suggest an interest in this relationship for 

further study as there are at least two interpretations that are consistent with our observations.

First, it is possible that the introductory materials allowed participants to more efficiently process 

subsequent information about the RILAs, accelerating reading of the information presented in 

the KIT rows with limited detrimental effects. On the contrary, the introductions, which provide 

an alternative source of some of the KIT information, could have simply increased participants’ 

subjective sense of familiarity, leading them to speed through the KIT while retaining less 

information presented in the KIT. Additional research is needed to identify how common either 

of these effects may be and what kinds of introductions are more likely to result in better

comprehension. 

Summary of Quantitative Testing

The quantitative testing suggests that understanding RILAs is challenging for many 

consumers. Overall comprehension was low, and there were no statistically significant 

differences in the percentage of correct responses for overall comprehension across treatment 

arms. In terms of our sub-score concepts, the decision focus introduction variant demonstrated 

some promise in terms of basic RILA concepts and appropriateness, but it did not affect overall 

scores or scores on the Liquidity and Insurance sub-score. The Q&A KIT format demonstrated a 

statistically significant, albeit quantitatively small, improvement over the Non-Q&A KIT format. 

Finally, more sophisticated respondents demonstrated higher (though still arguably low) levels of 

comprehension. Even with the most promising variants of the introduction and the KIT (the 

decision focus introduction and the Q&A KIT), there were only modest improvements, and no 

variation in treatment effects across subgroups. We are unaware of any disclosure that has 

achieved perfect levels of comprehension in quantitative testing. However, it is possible that 

additional variants could further increase investors’ comprehension and decision-making quality.
Investor Testing Report on Registered Index-Linked Annuities | 56

Jargon demonstrated a clear barrier in our quantitative testing. We found that

comprehension was substantially lower for our jargon-laden questions relative to the non-jargon 

questions. Yet, even the questions without jargon yielded average comprehension levels of at 

most 65%. This suggests that substantial conceptual barriers surround RILAs. Some 

comprehension questions highlight how hard these products were to understand. For example, 

only 12.6% of participants correctly identified that RILAs are investment vehicles that are 

intended purely as retirement savings vehicles rather than intended for achieving other goals 

(e.g., education, home purchasing). This question was intended to be among our most basic 

questions about the products.

26 From the qualitative results, we found that people had trouble 

understanding what features apply to the overall contract versus the individual RILA investment. 

This pattern was confirmed, as only 21% of participants correctly identified that a floor applies 

to a RILA investment option rather than to the insurance contract.27

To the extent that disclosure is the policy instrument of choice for addressing investor 

protection concerns, future research may choose to build on the potential merits of the decision

focus introduction condition (and, to a limited extent, the Q&A KIT format). In particular, as 

the decision focus introduction was designed to provide decision-relevant information up front,

further research could seek to understand what factors are most important to the actual decisions 

the investor needs to make (e.g., Should I invest in a RILA?), followed by designing a disclosure 

that is organized with that structure in mind. If pursued, these materials should also follow other 

principles of good communications (e.g., Bruine de Bruin & Bostrom, 2013; Sunstein, 2010) to

avoid information overload (Scheibehenne, 2010). At the same time, the fact that these products 

are typically professionally sold and highly complex suggests that policy attention to investment 

professionals’ conduct and marketing standards may merit consideration, at least as a 

complement to disclosure. 

26 On this item, an OLS regression model showed that comprehension was significantly higher for the decision focus introduction condition 

relative to the control introduction condition (a difference of 5.9 percentage points, p = 0.002) 27 There were no differences between the conditions on this item. 
Investor Testing Report on Registered Index-Linked Annuities | 57

7. Conclusions

Summary of Methods

This report presents the results of research and investor testing that fulfills the 2022 

Congressional directive to “engage in investor testing” regarding RILAs.

28 In particular, we 

conducted (1) a simulation analysis to understand how RILA products and their insurance 

features affect investment results and potential investor outcomes when no early withdrawals are 

made, (2) a review of common marketing practices, (3) qualitative testing, and (4) quantitative 

testing. By examining RILAs from multiple angles, we provide more holistic, multidisciplinary

insight regarding these products.

In our simulation analysis, we measured the benefits and risks of hypothetical RILA 

products over different time periods, and we measured how highly complex sets of insurance 

features would have operated under various market environments. These simulations enabled us 

to estimate purchaser outcomes for up to 3 decades of market history, using current product 

offerings, even though we were unable to access direct information on actual investor outcomes 

and true historical RILA insurance features. Part of the simulation work concentrated on 

commonly offered insurance features and on how variants of those features could affect 

outcomes. Overall, the simulation results are crucial to understanding the economic features and 

economic value of RILA products—particularly performance and risk—that might be worth 

consideration in product disclosure. We identified investment options that increase certain risk 

measures in historical simulations despite the products largely being sold as risk mitigation 

instruments, raising concerns that some investment options may not operate as consumers 

expect. More investigation along these lines and additional transparency is needed to fully 

understand RILAs and how the market evolves over time. 

In our review of product providers’ common marketing practices, we explored the 

advertised benefits of RILAs for potential investors. This component of our research set the 

stage for our qualitative and quantitative testing and helped provide basic information about how 

the products are presented to potential purchasers. 

In our qualitative testing, using an in-depth interview approach with 20 annuity owners 

and potential owners, we explored familiarity with RILAs and how consumers approach the 

terminology and features of RILA products. These interviews provided initial information on 

how well consumers understood the RILA disclosures and applied the information they received

to the scenarios. The open-ended approach also allowed participants to raise questions about the 

materials, bringing up issues that were relevant for them. Ultimately, the qualitative study was 

crucial to our ability to design our quantitative testing. 

28 See Section 1 of this report for more information.
Investor Testing Report on Registered Index-Linked Annuities | 58

Finally, the quantitative testing allowed us to formally test certain variants of the

disclosure formats and introductory texts. The testing, which employed a nonprobability sample, 

provided additional information on the ability of these variants to affect investors’ understanding 

of the products and their ability to apply knowledge of the products. 

Summary of Findings and Discussion

Each of our research efforts yielded insight into RILA products or disclosure.

Simulations. In our exploration of the insurance features, we identified that, as expected,

certain insurance features (such as caps) can, in some cases, limit returns relative to the 

underlying index and that downside protections may avert relative losses. However, the benefits 

of such risk reduction should not be overstated: An identical set of insurance features was 

associated with a wide variety of investment outcomes (and relative outcomes), depending on 

when the investment occurred, due to the timing risk associated with RILA investing. We also 

identified some instances in which RILA options would have increased both the probability and 

magnitude of loss, while substantially reducing the upside gain. 

The simulations helped highlight the conditions under which relative gains and losses 

occur. Despite the fact that many of the insurance features appear to operate mechanically (e.g.,

caps limit returns), it is difficult to fully understand the implications of the insurance features.

The insurance features only activate under specific index movements, and the time-limited 

investment terms mean that gains or losses over a prolonged period of time may not be the same 

as a series of repeated investments that span the same period. For instance, a RILA contract 

consisting of two 3-year investment options may differ from a single 6-year investment option 

over the same period. In the first case (with two 3-year terms), the relative value is determined 

by the index movements halfway through the 6-year period, since a RILA with a 3-year term 

would have returns credited or removed after each investment term. This midstream evaluation

of returns means that the ultimate value may be higher, lower, or the same.

Marketing Practices. Overall, our review of RILA marketing materials suggests that the 

number of choices an investor needs to make when investing in a RILA and when selecting 

among available investment options (e.g., choices of index, buffer, floor, cap rate, participation 

rate, term length) could easily be overwhelming. There are many individual decisions to make 

with RILA products and while the promotional materials focus on the highly important decision 

of whether an individual should consider a RILA, they often do not include information that 

could aid decisions about which specific options to choose within that RILA. This complexity 

might increase investors’ dependence on other sources of information, including professionals to 

identify whether a RILA is appropriate for them, to explain the pros and cons of the different 

menu of investment options, and to aid the investor in determining which combination of 

features is likely to be in their best interests. However, Scholl et al. (2018) report that fewer than 

half of investors report using professional financial advice. 
Investor Testing Report on Registered Index-Linked Annuities | 59

Qualitative Testing. We identified a range of barriers to investors’ understanding of 

RILAs and associated disclosures. In our study, one recurring issue was the terminology used to 

describe RILA contracts and the investment options. The jargon was confusing and led to

incorrect beliefs for some study participants. For example, many participants interpreted the 

phrase “term” or “investment term” largely to mean the length of time in which they are locked

into the RILA contract, whereas it actually refers to the length of time they are locked into a 

particular investment option. Use of this terminology led many participants to the wrong 

impression about how other features of the product work and misdirected interpretations of the 

disclosures about those features; for example, the structural distinction between the RILA 

contract itself (for which surrender charges and tax penalties may apply for withdrawing money 

even after a term has completed) and the investment options (for which an early withdrawal 

would additionally require payment of an Interim Value Adjustment) remained unclear.

There was significant confusion about the features and expenses associated with RILAs, 

including concepts like the buffer and the Interim Value Adjustment. Our participant pool 

targeted annuity owners and shoppers and had several highly sophisticated investors. Even these 

individuals demonstrated confusion or lost interest in RILAs once that confusion was abated.

Several variants of the disclosures were examined, including variations on the KIT as 

well as inclusion of graphics or tables to illustrate several key points, but each of these variants 

pointed to the difficulty in communicating key features of RILAs to the investing public, 

including the communication of basic aspects such as how the products work and what purpose 

they are intended to serve for the investor. The ineffectiveness of the graphical and tabular 

information we presented may be considered specific to the graphical and tabular designs we 

used: we did not study whether the graphics or tabular presentations in general could be 

effective, which was not possible given the limited time available for this research; such testing 

would require examining many different types of each display. 

Quantitative Testing. Our testing examined a set of KIT variations, different 

introductions to the RILA products, and the role of variable incentives in affecting 

comprehension. We largely observed that there were no significant differences, on average,

among any of the treatment conditions. Even when we found significant differences, their 

magnitudes were modest (e.g., 1 to 5 percentage points), particularly considering the average 

comprehension levels observed, with the decision focus introduction showing promise and the 

Q&A KIT format having a slight improvement in certain sub-scores. Certain subgroups of

participants varied in their comprehension but not differentially across treatment conditions. Our

results do not indicate that disclosures writ large are ineffective at communicating relevant 

information to investors. Rather, they suggest that the range of options we tested did not 

differentially impact comprehension. Moreover, our results suggest that misunderstanding 

permeated a variety of conceptual issues regarding RILAs. There were relatively low levels of 

comprehension regarding both technically difficult questions about the insurance features and 

basic questions regarding the purpose of a RILA. 
Investor Testing Report on Registered Index-Linked Annuities | 60

Although our variations on the KIT were somewhat limited and a broader range of 

options could be explored, the limited effects of the alternative introductory texts suggest that 

disclosure variants may not be a complete solution for investors who are interested in RILAs. 

We provided participants with one of four introductory texts (no introduction, a benefits-only 

introduction, and two substantive introductions). These different introductions did not result in 

improved participant outcomes on overall comprehension despite a wide variation in not only 

clarity, but also in the information provided. Along certain sub-score dimensions, the decision 

focus introduction demonstrated the most promise. Nevertheless, further pursuit of alternatives 

may be worth consideration. 

Implications of the Research: The Economics of RILAs

To make an informed decision about purchasing a RILA, investors need to have a full 

understanding of the economics of RILAs—the costs, benefits, and how future behavior may 

affect subsequent outcomes. By understanding the aspects of RILAs that most affect investor 

outcomes, policy activities can be more targeted. Our research suggests that RILAs are highly 

complex financial instruments with features that are difficult to understand. Investors may need 

additional information and assistance to understand these products’ likely financial outcomes. In 

some cases, the relevant information is lacking in extant documents. Further testing may be 

warranted to determine the best ways to communicate with investors: 

• A clearer distinction between the contract and the investment term: Many of our 

study participants reported that it is difficult to reconcile the 1-, 3-, and 6-year terms with 

the statement that a RILA is “a long-term investment product.” Many assumed that their 

funds could be liquidated without penalty at the end of a 1-year term, and many had

different subjective interpretations of the period implied by “long term.” Information

about the typical or anticipated contract length and the minimum contract duration to 

withdraw money without penalty could be helpful for investors to understand the 

distinction between the contract and the investment option term.

• The financial implications of caps, floors, buffers, and other insurance features: 

Insurance features are particularly confusing when a RILA contract contains multiple 

investment options that are renewed at the end of the investment term. To better illustrate 

those features, investors may benefit from information about the relationship between 

premium payments (invested) and money out (e.g., the investment balance or funds 

distributed) and about how those relationships vary in different market conditions. 

Relatedly, an understanding of how a given insurance feature works in a single point-topoint investment term does not imply an understanding over the life of an investor’s 

RILA contract (due to value recalculation at the end of an investment term, the potential 

reinvestment at the end of the investment term, and the repeated timing risk from these 

adjustments). Better illustration of these relationships may be necessary.
Investor Testing Report on Registered Index-Linked Annuities | 61

• Information on investment alternatives: Investors may benefit from seeing comparative 

information about hypothetical investments in the underlying index, a plausible

alternative to investing in a RILA. In previous research, investment-related attributes 

have been compared to performance benchmarks (Chin et al., 2022a) or the market 

overall (Scholl, Craig, & Chin, in press) to provide context. However, without future 

research, we cannot determine whether benefits from comparisons would outweigh other 

potential costs, such as those stemming from information overload. 

• The financial consequences of early withdrawals: Given the substantial penalties 

associated with early withdrawals (i.e., Interim Value Adjustments, surrender charges, 

and penalties), additional consideration should be given to the presentation of quantifying 

these costs and how they affect investment value. Investors may be interested in the 

extent to which others have made early withdrawals and how a given RILA balance could 

change when the investment is withdrawn mid-term.

• Information on risks: Although the hypothetical KIT discussed risks, the descriptions 

did not always provide information on the likelihood and magnitude of the risks. We 

believe a more direct and decision-relevant discussion of risk merits consideration, 

especially because RILA advertisements prominently mention risk mitigation. Financial 

models may concentrate on the standard deviation of returns or some function thereof 

(e.g., the Sharpe ratio), but risk in the common vernacular may be quite different 

(Holzmeister et al., 2020) and may include the chances of any loss, the chances of a loss 

greater than 25%, or some other concept. In our simulations, we found that over 6- and 

12-year investment durations, some of the indexes underlying the RILAs rarely lost

money, and when they did, the losses tended to be small in magnitude. Some of the 

RILA insurance options we explored mitigated these losses at the cost of considerable 

upside, raising questions about whether investors are fully informed about returns. Some 

examples exacerbated risk in the sense of certain risk definitions. Bearing this in mind, 

the historical probability of a negative return on a RILA product versus the historical 

probability of a negative return in the index over the lifetime of a RILA contract might be 

informative. Further research could continue to explore how investors conceive of risks 

and how such risks can be effectively communicated (for existing research, see e.g., 

Holzmeister et al., 2020; Morgan et al., 2002; Okan, Stone, & Bruine de Bruin, 2018). 

• Information on the annuitization payout structure and clients’ propensity to 

annuitize: This information speaks to the economic value of the RILA products as longterm annuity payout streams, one of the key purported aspects of their value propositions. 

On an aggregate level, the scarcity of information regarding past RILA performance 

presented enormous challenges to our research, both to understanding the implications of RILA

products for investors and to identifying the risks, consequences, and implications for investors

so that a disclosure and its contents can be effectively designed. More data transparency in terms 

of actual investor outcomes for these complicated products is important to identifying and 

communicating decision-relevant information to investors. Such information would certainly be 
Investor Testing Report on Registered Index-Linked Annuities | 62

of interest to researchers and regulators as they consider appropriate investor protection policy 

responses. 

Implications of the Research: Considerations for Disclosure Design

Our options for disclosure testing were constrained both by the available time and the 

range of possible policy options that could be reasonably considered. With additional resources 

and disclosure variants, more testing could be conducted. Better design of the KIT and other 

aspects of the disclosure could conceivably improve investors’ ability to comprehend the 

information and apply it to make better decisions. Some considerations for further development 

include:

• Identifying clear goals: The KIT and other disclosure documents could be restructured 

with clear, measurable, and coherent decision-making goals in mind. “Providing 

information” may not be a sufficient objective; indeed, risk communicators sometimes 

critique this strategy as “inadequate” relative to changing beliefs or behavior (Brewer, 

2011). Further, providing information does not imply a strategy for evaluating the 

efficacy of a disclosure in the context of helping investors make investment decisions that 

are aligned with their needs and preferences. Longer disclosures, such as a statutory 

prospectus, might be made available as reference material or for certain users such as 

financial professionals. 

• Decision-making–centered design approach: Disclosure materials could be designed 

and revised to include information that is relevant to decisions that an investor has to 

make. For example, relevant questions in the RILA decision-making process might

include: What is a RILA? Is a RILA right for me? Which insurance company is best for 

me? Which RILA is right for me? What investment option is best for me? Each 

disclosure could provide, in an organized framework, the information that would be 

relevant to understanding each particular question. To simplify the disclosure, irrelevant 

information could be removed.

• Timing of delivery: Providing a point-of-sale decision document could increase the 

relevance of the information compared to a situation in which information is presented 

after an investment decision has already been made. Indeed, past research has shown that 

disclosing information in advance of a decision can increase attention (Chin & Beckett, 

2021). If detailed information is only available in the RILA prospectus, it may not help 

support consumers when they are making a decision, particularly when the decision may 

be economically, socially, or emotionally costly to unwind. 

• Length: Although having access to full information about a RILA product is crucial for 

an investor to be informed, key information related to an investor’s decision could be 

provided in a short form. A long disclosure is unlikely to be read and may in fact deter 

investors’ engagement with the disclosed material (see Sunstein 2010 for further 

discussion of optimal disclosure design; Plaut & Bartlett, 2012, who found that shorter 
Investor Testing Report on Registered Index-Linked Annuities | 63

disclosures can encourage greater reading time in the context of click-through 

agreements).

• Avoiding jargon: Terminology can present an enormous barrier to investors’ 

understanding and engagement in financial decision making (Chin et al., 2023). 

Moreover, as our testing on RILAs has highlighted, poor terminology can cause investors 

to interpret key concepts in an erroneous way. This may be particularly true for cases in 

which the terminology is used to describe different concepts across financial products 

(e.g., the “term” of loan vs. the “term” of an investment option as distinct from the RILA

contract). 

• Frequency of communication: Given that RILA terms may conclude episodically over 

long periods of time and that there are severe penalties for accessing funds mid-term, 

good practice could require issuers to inform investors that an investment term is about to 

end so that the investor can reallocate or withdraw money according to their needs and 

preferences. 

Concluding Thoughts

RILAs are a complex financial product. Beyond the decision of whether to invest in a 

RILA, purchasers must make choices about (among other things) an insurance provider, the 

underlying index, the insurance features, and the investment term. The lack of flexibility with 

regard to the end of an investment term causes investors to realize returns on a fixed schedule, 

which will affect performance even for RILAs with otherwise identical contract features. 

Additionally, this inflexibility means that returns can be difficult to predict and different from 

those seen in the underlying index, where investors have more flexibility on the timing of 

withdrawals. The terminology and jargon used in describing RILAs makes it difficult for 

consumers to understand these products. However, the underlying concepts also present serious 

challenges, even for sophisticated retail investors. Our research and testing findings document 

the complexity of RILAs and demonstrate that investors and other stakeholders are likely to need 

significant additional information about RILAs in order to assess them, evaluate them, monitor

them, and make appropriate investment decisions. Further research is needed to continue to 

promote investor welfare in the RILA market.
Investor Testing Report on Registered Index-Linked Annuities | 64

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Appendix A. Supplementary Analyses on the RILA Market

Figure A1. Simulated RILA and S&P 500 PR Index Returns Over a 12-Year Period by Start.

Date.

Note. The figure compares the RILA investment option and the index returns over the same 12-year investment period. The black 

line is the values of a $10,000 investment over a 12-year investment period in the index; the yellow line (triangles) is an 

analogous line for the RILA investment option. The red line (circles) is the difference between the yellow and black lines. Dates 

correspond to the start date of the investment. Results are not adjusted for inflation.
Investor Testing Report on Registered Index-Linked Annuities | 68

Appendix B. Materials Used in Round 1 of Qualitative Testing 

KIT Disclosure

Table B1. Important Information You Should Consider About the Contract.
Investor Testing Report on Registered Index-Linked Annuities | 69

Table B2. Risk of Loss From Poor Market Performance.

Table B3. Risks Regarding Short-Term Investment.
Investor Testing Report on Registered Index-Linked Annuities | 70

Table B4. Tax Implications.

Scenario Text

Scenario 1: Uncle Bob is 85 years old and a veteran. He lives on his own but is expecting to 

move to an assisted living community during the next couple of years because he is increasingly 

forgetful. Getting around and taking care of himself is getting harder every year; if he’s honest 

with himself, he probably should be in assisted living right now, but his current plan is to wait 

another five years. Assisted living is expensive, and Bob is unsure if he’ll have enough money. 

He has some money that he wants to invest, which is in a regular investment account. His 

financial professional recommended a RILA product to him with a 5-year term, which Uncle 

Bob thinks will allow for stock market gains, with limited downside risk. 

Scenario 2: John is 55 years old and doesn’t think he will ever have enough money to fully retire. 

He doesn’t want to take any losses on his portfolio, especially because if an emergency comes 

up, he will need to withdraw that money and use it immediately. Right now he has a small,

conservative portfolio with mostly bonds and CDs. He is considering a RILA with maximum 

gains of 5% over the term and maximum losses of 1% over its 3-year term. 

Scenario 3: Pat and Jean are a couple in their early 40s. They have a daughter in seventh grade 

who is looking to go to college in seven years. They have saved some money for college but are 

worried it won’t be enough, so they would like to invest to try to make it grow a bit. At the same 

time, they are not confident about where the stock market has been going lately and they are 

worried about losing out more than they are putting in. 

Scenario 4: Taylor is a working professional and is almost 50 years old. Taylor has been saving 

for retirement for nearly 30 years. Taylor has a nice nest egg from a savings account and a 

retirement savings account with stocks and bonds. She doesn’t plan to use any of that money 

before retirement. However, she doesn’t think it will be enough for retirement given inflation 

and the rising cost of living. Taylor is also worried that the stock market is going to be 

overvalued and could face a major drop in five or six years.
Investor Testing Report on Registered Index-Linked Annuities | 71

Appendix C. Materials Used in Round 2 of Qualitative Testing 

Introduction to RILAs

What is a RILA?

If you get a RILA, you will enter into an annuity contract with an insurance company. It will 

provide a retirement savings option with the opportunity for tax-deferred growth. Under the 

contract, you will allocate premium payments to one or more “index options.” Under these 

options, your returns—that is, your gains as well as your losses—are based on a formula that is 

linked in part to the performance of a particular index. Growth (or loss) on the contract value is 

measured during a defined time period, or “investment term.” When one investment term ends, 

another investment term will begin.

What is a RILA?

At the end of each investment term, you may receive “interest” based, in part, on the investment 

performance of the specified index. If there was positive index performance, money will be 

added to your contract value. There are limits placed on market gains, in exchange for some 

protection against market losses. If there was negative index performance, money may be 

deducted from your contract value. Regardless of how the index performs, you may lose a 

significant portion of your investment if you withdraw your money before the end of an 

investment term.
Investor Testing Report on Registered Index-Linked Annuities | 72

KIT Document Tested: Important Information You Should Consider About the Contract
Investor Testing Report on Registered Index-Linked Annuities | 73

Graphics and Table Shown in Testing

Table C1. Illustration of Surrender Charges and Maximum Possible Loss.

Illustration of Surrender Charges and maximum possible loss

(assuming a 3-year investment term, a 9-year surrender period, and a 20% floor)

Figure C1. How Floor and Buffer Features Could Affect an Investor’s Losses Across Different 

Negative Market Scenarios.

The illustration below provides an example of how floor and buffer features could affect an 

investor’s losses across different negative market scenarios:
Investor Testing Report on Registered Index-Linked Annuities | 74

Figure C2. How Floor and Buffer Features Could Affect an Investor’s Losses Across Different 

Negative Market Scenarios.

The illustration below provides an example of how floor and buffer features could affect an 

investor’s losses across different negative market scenarios:
Investor Testing Report on Registered Index-Linked Annuities | 75

Figure C3. An Example of How 12% Cap and 10% Buffer Features Could Affect an Investor’s 

Losses Across Different Negative Market Scenarios.

The illustration below provides an example of how cap and buffer features could affect an 

investor’s losses across different negative market scenarios:
Investor Testing Report on Registered Index-Linked Annuities | 76

Table C2. Comparing S&P 500 Index to RILA. 

Scenario Text

Julie and Matt are a couple in their 50s. Up until last year, they felt confident about their 

retirement savings, and were considering some higher-risk assets with the hopes that their money 

could grow faster. However, they now think that they could face an emergency medical expense 

for Matt’s parents, and the associated costs. They are considering a RILA option with a cap on 

maximum gains of 50% and a floor on maximum losses of 20% over the initial six-year 

term. The RILA’s returns are based on a formula that is linked to the S&P 500. 

Now imagine instead that Julie and Matt waited for 12 years – the initial 6 year term, plus 

another 6 year term to withdraw all of the money they invested in the RILA. For both 

investment terms, the RILA had a cap on maximum gains of 50% and a floor on maximum 

losses of 20%, and the RILA’s returns were based on a formula that is linked to the S&P 500 

index.
Investor Testing Report on Registered Index-Linked Annuities | 77

Appendix D. Materials Used in Quantitative Testing

Introductions Presented in Quantitative Testing

This section contains the introductions used to provide background information on RILAs. A 

fourth condition did not contain any introductory text.

Introducing Participants to Key Terminology

This is an annuity contract between an insurance company and you, the investor. 

Under the contract, you will allocate premium payments to one or more specific “index options.” 

Under these options, your returns—that is, your gains as well as your losses—are linked to the 

performance of a particular index. 

We will credit “interest” to your contract value that is based, in part, on the investment 

performance of the specified index. If there is positive index performance, we add money to your 

contract value. If there is negative index performance, we deduct money from your contract 

value. 

You can pick the bounds for limiting loss if the performance of the index goes down in value 

(such as a loss “floor”). In exchange for some protection against market losses, there are some 

limits placed on market gains (such as a “cap” in gains).

Marketing Materials That Could Be Presented to Consumers When Shopping for a RILA

• Some people want to find ways to grow their retirement income without facing too much risk. 

• There is a product called a RILA that lets you earn income from the stock market. 

• It reduces risk by providing a level of protection against market downturns. 

• A RILA is a tax-deferred saving vehicle, so you won’t pay taxes until you take your money out. 

• There is flexibility. You get to choose how your money is invested and the level of protection you 

want.

Plain Language Introduction to Factors That Could Influence Participants’ Decision to Purchase a 

RILA

• A RILA (Registered Index-Linked Annuity) is a long-term annuity contract with an 

insurance company. 

• A RILA is a way to save money for retirement. There may be tax benefits from these 

savings, even if you already save as much as you can in a 401(k) or IRA. 

• If you buy a RILA, you invest in set of short-term investments that are linked to a 

stock market index, like the S&P 500. These investments typically offer insurance 

that may protect you against some losses when the index goes down. But they 

also limit your gains when the index goes up. 
Investor Testing Report on Registered Index-Linked Annuities | 78

• RILAs charge large penalties for taking money out early. You can lose 100% of your 

investment to penalties. The insurance protections against market losses do not protect 

you money against these penalties. So, you should be sure that you will not need to 

access your money for a long time. 

• Early withdrawal penalties arise if you take your money out: 

o Within nine years of last investing money 

o If your investment option is not expiring, and 

o Before you turn 59 1⁄2.

• If you invest in a RILA, you will make several complex decisions, both now and in the 

future, about how you want to invest your money. These include what index to follow, 

the length of the short-term investment options, the limits on gains and losses that you 

have in place, and how you will repeatedly reinvest money.

Versions of the KIT That Were Shown in Quantitative Testing

Table D1. Key Information Table for RILA (Q&A Format).

FEES & EXPENSES

Are there charges for early withdrawals from the contract?

Yes. In addition to the charges that can be charged if you with withdraw your money 

before the end of an investment term, if you withdraw money from your contract at any 

time within 9 years following your last premium payment, you will be assessed a 

surrender charge of up to 9% on the value of the withdrawal, declining to 0% over 9 

years.  

For example, if you purchase a contract and withdraw $100,000 during the surrender 

charge period, we would charge up to $9,000 on the amount withdrawn (so you would 

receive $91,000, assuming no other fees or penalties).

More information can be found at:

Charges (Surrender Charge)

Are there other penalties for mid-term withdrawals?

Yes. If you take money out from an index option for any reason before the end of the 

investment term, we will apply an adjustment to your contract value, called an “interim 

value adjustment,” which may be negative. You could lose up to 90% of your 

investment, even if the index has increased in value. 

For example, if you allocate $100,000 to an index option and withdraw the entire 

amount before the end of the term, you may lose up to $90,000 (so you would 

receive $10,000 of your original $100,000 investment, assuming no other fees or 

penalties apply). 

This penalty applies in addition to any surrender charge.

More information can be found at:

Charges (Interim Value Adjustments)

RISKS

Is there a risk of loss from poor market performance?
Investor Testing Report on Registered Index-Linked Annuities | 79

Yes. You can lose money by investing in this contract, including loss of principal.

The index options offer different features for limiting your losses, but you can still lose 

money on the investment with either feature.

For example, some index options feature a “floor,” which limits the amount you can lose 

on the index option if the index goes down. You could lose up to 20% of your 

investment (but no more than 20%) over the term from poor index performance under 

the index options featuring a floor that this contract offers.

As another example, some index options feature a “buffer,” which means you will 

experience losses from a decline in the index in excess of the buffer percentage. You 

could lose up to 90% of your investment over the term from poor index performance 

under the index options featuring a buffer that this contract offers.

The illustration below provides an example of how floor and buffer features could 

affect an investor’s losses across different negative market scenarios:

More information can be found at:

Principal Risks

Is this a short-term investment?

No. This contract is not designed for short-term investing and is not appropriate for an 

investor who needs ready access to cash.

• Taking money out of the contract may result in surrender charges, 

discussed above. 

• This also can result in taxes and, depending on your age at withdrawal, 

tax penalties.

• Taking money from an index option before the end of the investment term 

(such as by withdrawing the money, or moving it to another index option) may 

also result in an interim value adjustment and the loss of positive returns. This 

can result in a reduction to the values under the contract that exceed the amount 

withdrawn.

More information can be found at:

Principal Risks
Investor Testing Report on Registered Index-Linked Annuities | 80

Table D2. Key Information Table for RILA (Non-Q&A Format).

FEES & EXPENSES

Charges for Early Withdrawals

In addition to the charges that can be charged if you with withdraw your money before 

the end of an investment term, if you withdraw money from your contract at any time 

within 9 years following your last premium payment, you will be assessed a surrender 

charge of up to 9% on the value of the withdrawal, declining to 0% over 9 years.  

For example, if you purchase a contract and withdraw $100,000 during the surrender 

charge period, we would charge up to $9,000 on the amount withdrawn (so you would 

receive $91,000, assuming no other fees or penalties).

More information can be found at:

Charges (Surrender Charge)

Other Penalties for Mid-Term Withdrawals

If you take money out from an index option for any reason before the end of the 

investment term, we will apply an adjustment to your contract value, called an “interim 

value adjustment,” which may be negative. You could lose up to 90% of your 

investment, even if the index has increased in value. 

For example, if you allocate $100,000 to an index option and withdraw the entire 

amount before the end of the term, you may lose up to $90,000 (so you would 

receive $10,000 of your original $100,000 investment, assuming no other fees or 

penalties apply). 

This penalty applies in addition to any surrender charge.

More information can be found at:

Charges (Interim Value Adjustments)

RISKS

Risk of Loss

You can lose money by investing in this contract, including loss of principal.

The index options offer different features for limiting your losses, but you can still lose 

money on the investment with either feature.

For example, some index options feature a “floor,” which limits the amount you can lose 

on the index option if the index goes down. You could lose up to 20% of your 

investment (but no more than 20%) over the term from poor index performance under 

the index options featuring a floor that this contract offers.

As another example, some index options feature a “buffer,” which means you will 

experience losses from a decline in the index in excess of the buffer percentage. You 

could lose up to 90% of your investment over the term from poor index performance 

under the index options featuring a buffer that this contract offers.

The illustration below provides an example of how floor and buffer features could 

affect an investor’s losses across different negative market scenarios:
Investor Testing Report on Registered Index-Linked Annuities | 81

More information can be found at:

Principal Risks

Not a Short-Term Investment

This contract is not designed for short-term investing and is not appropriate for an 

investor who needs ready access to cash.

• Taking money out of the contract may result in surrender charges, 

discussed above. 

• This also can result in taxes and, depending on your age at withdrawal, 

tax penalties.

• Taking money from an index option before the end of the investment term 

(such as by withdrawing the money, or moving it to another index option) may 

also result in an interim value adjustment and the loss of positive returns. This 

can result in a reduction to the values under the contract that exceed the amount 

withdrawn.

More information can be found at:

Principal Risks