How FIA gains are calculated
Quick Definition: The crediting method determines how index gains are measured and credited to your FIA account. Common methods include annual point-to-point (most popular), monthly average (smooths volatility), and performance triggers. The method significantly affects your returns.
1. Annual Point-to-Point (Most Common)
Compares index value on anniversary dates. If index is higher, you get credited gain (up to cap). Simple and transparent.
2. Monthly Average
Averages index values across 12 months, then compares to starting point. Smooths volatility but typically has lower caps.
3. Monthly Point-to-Point with Cap
Measures gains each month, subject to monthly cap (e.g., 1-2%), then sums for year. Complex but can capture more upside in steady markets.
4. Performance Triggered
Credits gain only if index exceeds certain threshold. Higher participation but only pays if trigger is hit.
Two FIAs with same cap but different crediting methods can deliver vastly different returns:
Example: Market goes up 15% with high volatility
→ Annual point-to-point: Credits 11% (hits cap)
→ Monthly average: Credits 8% (volatility reduces average)
→ Performance trigger: May credit 0% if trigger not hit
Annual point-to-point is simplest and most transparent. Monthly averaging can help in volatile markets but typically has lower caps. Always understand the crediting method before buying—it dramatically affects your returns.