Funds that are performance-linked to the S&P 500 stock index, such as equity indexed annuities, are appealing to many people who want to earn competitive rates of return on their investment. The S&P 500 is generally considered representative of the U.S. stock market. Equity indexed annuities, however, are not securities, but classified as single-premium traditional annuities. This makes equity indexed annuities attractive for several reasons.

The first and possibly most-attractive provision of equity index annuities is the no-loss provision, or minimum rate guarantee. This means that once a premium payment has been made or interest has been credited to the account, the account value will never decrease below that amount. This provides safety against the volatility of the S&P 500.

The next benefit that appeals to many people is interest guarantees. Most policies have a cap (the maximum interest rate that can be credited to a policy in a policy year) and a floor (the minimum interest rate that can be credited in a policy year). The cap rate can vary from no cap to a fixed percentage, but the floor is generally zero. This allows the policyholder to benefit from potentially high returns and be guaranteed at the same time that no money will be lost.

Finally, equity index annuities offer the same benefits as traditional annuities, such as tax-deferred growth and early withdrawal of funds without penalty. This early withdrawal is usually conditioned upon the annuitant's death or admittance to a nursing home. Guarantees are provided by the issuing insurance company.