Which market index is normally associated with an indexed annuity's rate of return?

• A. Dow Jones
• B. Nasdaq
• C. Russell 2000
• D. S & P 500

Answer: (D)

In indexed annuities, interest is credited based on the performance of an external market index rather than a fixed rate. The most common index used for measuring that performance is the S&P 500 because it represents a broad cross-section of 500 large U.S. companies and is widely tracked and standardized. After the index performance is determined, the insurer applies contract features such as caps, participation rates, or spreads to determine the credited rate.

Other indices exist, like the Dow Jones Industrial Average (30 large companies, price-weighted), the Nasdaq (technology-heavy, broader but more volatile), or the Russell 2000 (small-cap focus). These are less typical benchmarks for indexed annuities, which is why the S&P 500 is the standard association with the rate of return.