A performance trigger is an indexed annuity crediting method that can credit a stated rate when the linked index finishes a contract year above zero. For financial professionals evaluating accumulation options, it is a straightforward concept with an important difference from a traditional annual point-to-point strategy with a cap.
The distinction matters most in years when an index posts a modest positive gain. An annual cap credits the actual index gain up to the cap. A performance trigger can credit its full declared rate as long as the index clears its positive threshold, even if the index gain itself is small.
What Is a Performance Trigger in a Fixed Indexed Annuity?
A performance trigger is a crediting approach available in some fixed indexed annuities. It applies a predetermined interest credit when a selected market index meets the trigger condition over a specified crediting period.
In the example below, the crediting period is one year and the trigger condition is simple: the S&P 500 must end the period positive. If it does, the annuity receives the stated trigger credit. If it does not, the trigger credit is not earned for that period.
For example, assume an annuity strategy has an 8% annual performance trigger tied to the S&P 500:
- If the index finishes up 0.1%, the account receives an 8% interest credit.
- If the index finishes up 2%, the account receives an 8% interest credit.
- If the index finishes up 7%, the account receives an 8% interest credit.
- If the index finishes up 12%, the account still receives 8% under this example.
The 8% is the maximum credit for that strategy in the example. The appeal is not unlimited upside. It is the potential to receive the full declared rate in positive years when the index return is below that rate.
Performance Trigger vs. Annual Point-to-Point Cap
Annual point-to-point strategies and performance triggers can both use the same index and annual measurement period, but they calculate interest differently.
Annual point-to-point with a cap
With an annual point-to-point cap, the index return is measured from the beginning to the end of the contract year. The annuity generally credits the index gain up to the stated cap.
Using an 8% cap as an illustration:
- An index gain of 9% produces an 8% credit.
- An index gain of 4% produces a 4% credit.
- An index gain of 2% produces a 2% credit.
Annual performance trigger
With an 8% performance trigger, a positive year can result in the full 8% credit, whether the index rises by a fraction of a percent or substantially more. This makes the trigger approach particularly relevant when an index finishes positive but below the rate available through the trigger.
| Annual index result | 8% annual cap example | 8% performance trigger example |
| 12% gain | 8% credit | 8% credit |
| 7% gain | 7% credit | 8% credit |
| 2% gain | 2% credit | 8% credit |
| 0.1% gain | 0.1% credit | 8% credit |
The central tradeoff
An annual cap tracks positive index performance up to its limit, while a trigger strategy pays its stated amount after the required positive result is achieved. In a strong market year above the stated trigger rate, both may credit the same maximum in this simplified comparison.
Concierge Insurance IMO Support That Grows With You
TWH Agency is a leading annuity and life insurance marketing organization providing personalized marketing and case design support for financial advisors and independent insurance professionals. From ready-to-use tools and marketing ideas for annuity agents to advanced annuity case design help for seasoned professionals, we deliver the expertise, resources, and dedicated concierge guidance you need to confidently serve your clients and grow your business, all tailored to your goals and objectives.
TWH Agency is a top IMO for insurance agents and financial advisors. Our financial advisor marketing ideas and advisor support platform are second to none. If you’re ready to take your practice to the next level, we welcome the opportunity to partner with you. Connect with us to learn more about how we’ve earned the reputation for being a best IMO for independent agents today!