During a period when the underlying index of an index annuity drops, what is the worst outcome the owner can expect?

The correct outcome during a period when the underlying index of an index annuity drops is that the owner can expect interest credits of the minimum guaranteed rate only. This is because indexed annuities are designed to provide a level of protection against market losses. They typically include a minimum guaranteed return, ensuring that the policyholder does not lose principal or the premium paid.

In situations where the underlying index decreases, the indexed annuity's design prevents the owner from experiencing a direct loss tied to the market performance. Instead, the policyholder may receive interest based on the minimum guarantee outlined in the annuity contract. This aspect of annuity design provides a safety net, allowing the policyholder to retain their investment value, minus any fees or charges that may apply, while still potentially benefiting from market upside in other periods.

The other outcomes listed are not applicable because indexed annuities are structured specifically to limit downside risk while offering potential growth tied to a market index, further validating that the minimum guaranteed interest is the worst-case scenario rather than a loss of premium or lower credited interest rates.