Average Method

Average method is a term that refers to a fixed indexed annuity crediting method. Indexed annuities credit a level of interest to the contract owner, and this level of credited interest can be indexed or linked to the performance of equity markets. The average method involves a level of credited interest that is based on the difference between an average index value and a starting index value over a given period of time such as days, months or years. For example, assume that the reference index begins the month at 100. Next, assume that the average value of this index over the course of the following month is 103. The difference between the starting point and the average value is 3 points which is 3 percent of the index value at the beginning of the month. In this case, the contract owner would likely be credited a level of interest that is some portion of the 3 percent based on an interest cap or participation rate.