What influences the payouts of market-linked annuities?

The payouts of market-linked annuities are primarily influenced by the performance of the market, including any gains or losses associated with the underlying investments tied to the annuity. This means that the returns on the annuity fluctuate based on the performance of specific market indices or investment portfolios chosen by the contract holder.

Market-linked annuities typically offer the potential for higher returns compared to traditional fixed annuities because they are designed to provide benefits based on the appreciation of certain assets, like stocks or bonds. Thus, when the market performs well, the payouts increase, reflecting the gains made from those investments. Conversely, if the market performs poorly, the payouts may decrease or be limited based on the structure of the annuity.

This effective linkage between market performance and payout is a distinctive characteristic of these products, allowing investors to potentially benefit from a growing market while still providing some level of protection against losses through various structures that may cap the downside risk.