What is true regarding banding on index annuities?

In the context of index annuities, banding refers to how the interest or rate credits are structured based on the amount invested. When larger purchase amounts are made, insurance companies often provide more favorable terms, which can include higher rate caps. This is because larger investments can reduce the insurer's risk and administrative costs associated with managing smaller contracts. As a result, they incentivize higher investments by offering these more attractive rate caps.

This practice aligns with the idea that as the investment amount increases, the insurer is willing to provide higher returns to encourage larger deposits, ultimately fostering a more profitable relationship for both the policyholder and the insurer. Therefore, it is accurate to state that typically, larger purchase amounts receive higher rate caps in index annuities, reflecting the benefits of banding in this context.