Floor
Also called guaranteed floor, minimum credited rate, 0% floor
The guaranteed minimum interest an indexed policy will credit in a bad year — usually 0% — the one part of the 'no market losses' pitch that's actually true.
The floor is the guaranteed minimum credited rate on an indexed policy — the number your interest can’t drop below when the index falls. On most indexed universal life and fixed indexed annuity contracts it’s 0%, sometimes 1%. When the market has a bad year, your credited rate is the floor instead of the loss. This part of the sales pitch is genuinely true, and it’s why indexed products appeal to people who can’t stomach market drops.
Here’s the honest nuance the pitch skips: a 0% floor is not a 0% loss guarantee. The floor protects your credited interest, but a permanent policy still deducts a cost of insurance and expense charges every month. In a floored year you earn nothing to offset them, so the account value can actually fall. The floor stops the index from hurting you; it doesn’t stop the policy’s own costs from doing so.
The floor is also worth respecting because — unlike the cap rate and participation rate — it’s usually guaranteed in the contract rather than adjustable at the carrier’s whim. That asymmetry tells you a lot about how these products are engineered: the number that protects you is locked, while the numbers that would grow your money are the ones the insurer can move.
So give the floor its due — then judge it in context. Ask: “In a 0% floor year, what do the total charges do to my cash value?” A floor is only as good as what’s stacked on top of it.
The floor is real and worth understanding: your credited rate can't go negative. But a 0% floor is not the same as 'you can't lose money' — policy charges are still deducted, so your cash value can shrink in a floored year.
The index drops 18%. Your policy has a 0% floor, so your credited interest for the year is 0% — you don't share the market's loss. But the [cost of insurance](/glossary/coi/) and expense charges still come out of your cash value, so the account can end the year lower than it started despite the 'no loss' floor.
The floor is one of the few indexed-policy features that does what it says: it caps your credited-rate downside. Just don't confuse a 0% credited floor with a 0% loss floor — charges still apply beneath it.