Which statement best describes equity-indexed annuities?

• A. They guarantee no minimums
• B. They are not linked to stock indices
• C. They are solely fixed-rate products
• D. They provide minimum guarantees and potential for greater return linked to an index

Answer: (D)

Equity-indexed annuities mix a guaranteed floor with potential for upside tied to a stock index. They promise a minimum value—such as a guaranteed surrender value or a guaranteed minimum interest rate—so the principal isn’t at risk for the term. At the same time, any interest credited can rise if the linked index performs well, though the upside is typically capped and limited by factors like a cap, a participation rate, or a spread. They aren’t direct stock investments, and they aren’t purely fixed-rate products, because the credited amount depends on index performance rather than a fixed rate alone. That combination—minimum guarantees plus potential for higher returns linked to an index—captures why this statement is correct.