Final answer:
An alternative to a traditional fixed rate annuity is an indexed annuity, which offers the potential for higher returns linked to a stock market index. Indexed annuities are appealing to risk-averse individuals who want some principal protection while still participating in market gains.
Step-by-step explanation:
An alternative to a traditional fixed rate annuity is an indexed annuity. Unlike a fixed rate annuity which pays a predetermined interest rate, an indexed annuity's return is linked to the performance of a specific stock market index, such as the S&P 500. This means that the return on an indexed annuity can vary based on market conditions.
Indexed annuities are appealing to individuals who want the potential for higher returns compared to a fixed rate annuity, while still maintaining some level of principal protection. They are suitable for those who are more risk-averse but still wish to participate in some of the upside potential of the stock market.