Glossary

Index crediting method

The formula an indexed annuity or IUL policy uses to turn an index's movement into interest, such as annual point-to-point or monthly average.

Also called: crediting strategy, index strategy, point-to-point, monthly average

An index crediting method is the rule that determines how much interest an indexed universal life policy or fixed indexed annuity earns based on a market index such as the S&P 500. Your money isn't invested in the index. The insurer measures the index's change over a period and applies the method, along with limits like a cap rate, a participation rate and a floor, usually 0%.

Common methods include annual point-to-point, which compares the index value on one contract anniversary with the next; monthly average, which compares the starting value with the average of 12 monthly values; and monthly sum, which adds up capped monthly changes. Averaging smooths volatility but usually credits less in strongly rising years. Say, hypothetically, the index rises 12% over a year under annual point-to-point with a 9% cap and 100% participation: you're credited 9%. If the index falls 15%, you're credited 0%.

Index changes usually exclude dividends, and insurers can change caps and rates at each renewal. Methods with the same name can work differently between companies, so read the contract's definitions. See IUL caps, participation rates and floors and fixed indexed annuities: caps, participation rates and trade-offs.

Last reviewed October 4, 2026

In the index now

Related terms

Cap rate The maximum rate an indexed universal life policy or indexed annuity will credit for a period, no matter how much the linked index rises. Participation rate The percentage of an index's gain that an indexed annuity or IUL policy credits as interest, such as 80% of a 10% rise, or 8%. Floor The minimum rate an indexed universal life policy or indexed annuity credits for a period, often 0%, so index losses don't reduce the credited interest. Indexed annuity A fixed annuity whose interest is tied to a market index's gains, limited by caps or participation rates, with a floor that shields it from index losses. Crediting rate The interest rate an insurer applies to the cash value of a universal life policy or the balance of a fixed annuity for a given period.

Related guides

Fixed indexed annuities: caps, participation rates and trade-offs A fixed indexed annuity credits interest tied to an index with a zero floor. How caps, participation rates and spreads work, the real costs, and who it suits. Indexed universal life (IUL) explained How indexed universal life credits interest from a stock index, what it costs, how policy loans work and why illustrations are limited by regulators. IUL caps, participation rates and floors How caps, participation rates, spreads and floors turn an index's return into an IUL credit, with worked examples and what insurers can change each year. IUL illustrations and Actuarial Guideline 49 How the NAIC's Actuarial Guideline 49 limits the returns an IUL illustration may show, what changed in 2015, 2020 and 2023, and what it cannot do. Registered index-linked annuities (RILAs): buffers, caps and risk A RILA links returns to an index with caps and buffers or floors, but you can lose money. How the downside protection works, the SEC rules and who it suits.