The 0% floor and caps, explained
Why a down market does not cost you a credit, and why a great one is capped.
3 min read
- Down years credit 0%, not a loss.
- Up years are limited by the cap and participation rate.
- Caps can change. Ask for the guaranteed minimum.
Every crediting period, usually once a year, the insurer looks at how the index moved and credits your cash value using three rules.
The floor
If the index went down, your credit is 0%. You do not lose past credits to a bad year. Policy charges still come out, so your cash value can dip slightly in a flat year.¹
The cap
If the index went up a lot, your credit stops at the cap. With a 10% cap and a 15% index year, you would be credited 10%.
The participation rate
Some policies credit only a share of the gain. At 80% participation, an 8% index year credits 6.4%.
| Index year | Credited |
|---|---|
| -12% | 0% |
| +8% | 8% |
| +18% | 10% (capped) |
Hypothetical example with a 10% cap and 100% participation. Real caps and rates vary by carrier and can change.
Ask your agent
What is the current cap, what is the guaranteed minimum cap, and can the insurer lower it later?
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