What is a fixed indexed annuity?

A fixed indexed annuity is an investment vehicle that ties its returns to a stock market index, combining elements of both fixed and variable annuities. The primary feature of a fixed indexed annuity is that it offers the potential for higher returns than a traditional fixed annuity, while still providing a level of protection against market losses.

Option B is correct because a fixed indexed annuity is designed to provide returns based on the performance of a specific stock market index, such as the S&P 500, while ensuring a guaranteed minimum return. This feature allows investors to benefit from market increases without the risk of losing their principal investment, as the annuity protects against market downturns.

In contrast, the other choices do not accurately represent the characteristics of a fixed indexed annuity. The option that describes an annuity providing fixed annual payments does not capture the indexing aspect. The one mentioning fluctuating payments implies a lack of the guaranteed minimum return, which is a key component of fixed indexed annuities. Lastly, the option restricting cash withdrawals only at maturity misses the flexibility and treatment of funds that can accompany these products. Overall, option B best encapsulates the definition and unique benefits of a fixed indexed annuity.