This article was co-written by Patrick Collins, Huy Lam, and Josh Stampfli.

After outlining various types of Equity Indexed Annuity [EIA] contracts, the article discusses reasons why both direct contract comparisons and ex ante performance estimates are difficult. It then explores three types of performance evaluation metrics: (1) option payoffs; (2) historical payoffs; and (3) simulation-based payoffs. Using the lower and upper bound dollar payoffs set by the EIA’s contract provisions, the article quantifies the likelihood that a contract owner either benefits from the downside protection or regrets the cap on the upside payoff. The probability of regret is explored over a spectrum of investment portfolio alternatives that might appeal to both conservative and aggressive investors. This discussion suggests that EIAs should be evaluated in both ‘dollar-wealth’ space and ‘utility-of-wealth’ space. It concludes by noting that the utility theory underlying classical economics cannot explain the popularity of EIAs among retail investors.