Winter wrote:
- quote -

Generally the Participation rate is calculated first and then the
interest rate cap kicks in. eg: 80% participation, 8% interest rate cap
and market index goes up 20%. 20% x .8 = 16% participation, however,
now the interest rate cap kicks in and your total gain is 8%. btw, 8%
is a very low interest rate cap, 15% would be more normal.

Kev


======================================= MODERATOR'S COMMENT:
Please trim the post to which you are responding. "Trim" means that except for a few lines to add context, the previous post is deleted.

I am trying to understand exactly what is meant by participation rate
in an annuity. Below, at the end of my post,I have included a couple
definitions from a site that I was looking at.


- quote -

would accrue to the annuity. And then you read the section on "interest
rate caps" and that makes sense too.

What I dont get is when you look at indexed annuities, eg. Allianz, and
it says in their brochure (next to the row titled "Participation
Rates") that the annuity has "100% participation guaranteed for life."
Yet, these annuities are capped so obviously 100% of the index gain
does not go to the annuity fund- you get the capped amount.

How should I understand the definition of participation rate or how do
these two fit together? Are they using a different definition to mean
that you get to participate in the capped/indexed scenario for 100% of
the time that you are in the fund or something like that?

Thank you.

Winter


"Participation rates.
Determines how much of the gain in the index will be credited to the
annuity. For example, an 80% participation rate would credit only 80%
of the index gain to the annuity.


Interest rate caps.
A maximum rate of interest the annuity will earn. For example, if the
cap rate was 8% and the linked index gained 10%, the gain in the
annuity would be 8%."