Which annuity combines an insurance product with a return based on a stock market index?

The correct answer is the indexed annuity. This type of annuity provides a unique blend of insurance features and investment opportunities. Specifically, indexed annuities offer a minimum guaranteed interest rate while also providing the potential for higher returns tied to a specific stock market index, such as the S&P 500. This means that your returns can grow based on the performance of that index, giving you exposure to equity market gains without directly investing in stocks.

Indexed annuities are particularly appealing to individuals looking for a balanced approach to retirement savings since they can provide growth potential similar to that of variable annuities but with reduced risk, since the principal is typically guaranteed and cannot lose value in a down market.

In contrast, variable annuities offer returns that vary directly with the performance of investment portfolios chosen by the policyholder, which carries a higher risk. Universal annuities, on the other hand, combine life insurance with savings features and do not directly track stock market indices. Deferred annuities simply refer to a payout structure where payments begin at a specified future date, without necessarily implying any connection to the stock market.