Life · Chapter 9 · Fixed, Variable & Indexed
Equity-Indexed Annuity (EIA)
Definition
A FIXED (non-variable) annuity whose interest is linked to a stock index (e.g., S&P 500) — the funds are not directly invested in the market. Offers guaranteed principal and a guaranteed minimum return (downside protection) plus upside potential: the owner is credited a percentage of the index gain, called the PARTICIPATION RATE, and must usually stay in the contract a minimum period.
In plain English
Market goes up, you get a slice of the gain. Market crashes, your principal is safe. The price of safety is you never get the WHOLE gain.
Exam tip
An EIA is classified as a FIXED annuity, not a security — no securities license needed to sell one.
Easy to confuse with
These are what this term gets tested against — if you can't tell them apart cold, drill the contrast.
Related terms