An indexed annuity is a contract with an insurance company where your interest crediting is tied to the performance of a market index — such as the S&P 500 — but your principal is protected from direct market losses. If the index rises, you receive a portion of the gain (subject to participation rates, caps, or spreads). If the index falls, zero interest is credited for that period, but your account value does not decline. Your money is not directly invested in the market.