This method can help shield consumers from the risk of a market decline on the maturity date. Some companies take an average of the 12 monthly indices to establish the policy's maturity index level. This method tends to lessen the risk of market decline. The increase in the index is calculated each policy year by comparing the indices on the beginning and ending anniversaries. Any resulting decreases are ignored.
Appreciation is figured by adding or compounding the increases for each policy year.
That's what you learn by reading the fine print. The National Association of Insurance Commissioners, a group of state insurance officials, is considering whether to develop model illustrations to help consumers considering the purchase of equity-indexed annuities. Trying to figure out how to value equity-indexed products is one of the most troublesome areas in the staid world of insurance accounting. And it has many committees devoted to this issue in turmoil. One technical task force of the actuarial association is struggling with the development of a standard reporting system.