Participation Rate

What Does Participation Rate Mean?

The participation rate is the percentage of returns a policyholder receives on an equity-indexed annuity. Equity-indexed annuities are one kind of annuity, alongside fixed and variable versions that work differently. Many life insurance companies offer annuities as an investment opportunity, and they determine the participation rate for policyholders. The higher the participation rate, the greater the percentage of earnings the policyholder will receive from the annuity.

Insuranceopedia Explains Participation Rate

Annuities, an insurance product that generates a fixed income later in the buyer’s life, are typically reserved for retirement. In the case of equity-indexed annuities, both the performance of the investments and the participation rate determine the payments the policyholder receives. For example, if the equities in an equity-indexed annuity increase by 100% and the participation rate is 50%, the policyholder will receive 50% of the increased value. The same participation rate concept shows up on indexed universal life insurance policies, where the insurer also credits only a set percentage of the index’s gain to the policy’s cash value. Individuals looking to maximize their investment may want to seek annuities with higher participation rates. Because participation rates differ between carriers, it pays to compare contracts from multiple life insurance companies that also sell annuities.