Annuity spread rate is the margin that an insurer subtracts from an indexTMs performance before crediting interest in certain fixed indexed annuity strategies. For example, if the index return is 8 percent and the spread is 3 percent, the credited interest would be 5 percent, subject to any additional caps or floors. Spreads are an alternative to or used in combination with caps and participation rates as a way for insurers to share in index returns while covering costs and profit margins. The spread rate directly affects how much of the indexTMs upside a client captures over time.

Advisors analyze annuity spread rates when evaluating indexed strategies, comparing them with cap-based or participation-based methods. They explain to clients that spreads function like an internal fee on index gains and that higher spreads reduce credited returns, especially in modest gain years. During allocation discussions, advisors may diversify across strategies with different combinations of spreads, caps, and participation to manage risk and opportunity. They also watch for changes in declared spreads at renewal. Understanding annuity spread rates helps advisors interpret illustrated performance and set realistic expectations about how much index growth will actually flow to the contract.