Definition - What does Participation Rate mean?
A participation rate is the percentage that a policyholder will receive on an equity-indexed annuity. Many life insurance companies offer annuities as an investment opportunity. Companies who offer annuities decide on the participation rate for the policyholders. The higher it is, the higher the percentage of earnings the policyholder will receive from the annuity.
Insuranceopedia explains Participation Rate
An insurance product that generates a fixed income later in the buyer’s life, annuities are usually reserved for retirement. With equity-indexed annuities, both the performance of the investments and the participation rate determine how much the policyholder receives in payments. For example, if the equities in an equity indexed annuity rise 100% in value and the participation rate is 50%, then the policyholder will receive 50% of the raised value of the equities. An individual looking to maximize their investment may want to seek the high participation rates.
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