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

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

Answer: (A)

Indexed annuities credit interest based on the performance of a market index, using that index’s change to determine how much interest is added. The S&P 500 is the most common index used because it represents the broad performance of large-cap U.S. stocks and is widely viewed as a reliable benchmark for overall market direction. In contrast, the Dow Jones Industrial Average is price-weighted and includes only 30 stocks, the Nasdaq Composite is heavily weighted toward technology and growth companies, and the Russell 2000 focuses on small-cap stocks. These differences in composition and calculation make them less typical as the standard index for crediting rates in indexed annuities. Thus, the normal association is with the S&P 500.