7.6.1.1 The Indexing Method
The indexing method means the approach used to measure the amount of change, if any, in the index. Some of the most common indexing methods include ratcheting (annual reset), and point-to-point.
Ratcheting
Index-linked interest, if any, is determined each year by comparing the index value at the end of the contract year with the index value at the start of the contract year. Interest is added to the annuity each year during the term. Ratcheting guarantees that past increases in accumulated cash value will not be lost.
Point-to-Point
The index-linked interest, if any, is based on the difference between the index value at the end of the term and the index value at the start of the term. Interest is added to the annuity at the end of the term. This method of crediting interest or changing values ignores the average changes in the stock index and changes contract values according to the change in index from one point in time (often the anniversary) to another.
