These are complex financial instruments that have characteristics of both fixed and variable annuities. Some index annuities offer a minimum guarantee interest rate combined with a participation rate linked to a market index hence the name.
Many index annuities are based on well-known indices like the S&P 500 composite stock price index, but some use other indexes including those that represent other segments of the market. Some index annuities allow investors to select one or more indexes. With some index annuity, your principal is guaranteed and you can never lose even if the market happens to go down.