Which annuity type is tied to a stock market index but does not require the purchase of underlying stocks?

• A. Fixed annuity
• B. Indexed annuity
• C. Equity indexed annuity
• D. Variable annuity

Answer: (C)

An equity-indexed annuity is designed to grow based on a stock market index without the investor owning stocks. It credits interest tied to the index’s performance, often with a cap, a floor, or a participation rate, and the contract itself does not require buying any underlying shares. This gives the potential for higher returns than a straight fixed annuity while still providing principal protection typical of indexed products. It differs from a fixed annuity, which guarantees a fixed rate, and from a variable annuity, which invests in underlying subaccounts of stocks and bonds and exposes the investor to direct market risk.