Glossary

1035 Exchange: A provision in the IRS code that allows you to move money from one insurance contract to another without tax consequences.
Account Value: Typically this amount is used when calculating a surrender value, an annuitization or death benefit. The account value equals the premium(s) paid in, plus any bonus and interest credited minus any withdrawals.
Accumulation Phase: Starting on the contract date, this phase of a deferred annuity is when your premium and any interest credited build up in the contract prior to the payout phase called annuitization.
Annuitant: Usually the same person as the owner but not always. The annuity owner names the annuitant. This is the person whose life expectancy is used to calculate the annuity payments.
Annuitization: An annuitization is when you begin the payment phase of the annuity following the accumulation phase. The process includes deciding whether to receive payment for a set number of years such as 10, 15 or 20 or to receive payments for your lifetime no matter how long you live.
Annuitization Period: The annuitization period immediately follows the accumulation phase of the annuity. It is when the accumulated value is paid out over a selected period of time or for life.
Annuitize: To annuitize means to go from the accumulation phase of the annuity to the payout phase. Once you have annuitized, you will begin receiving regularly scheduled payments from the insurance company for the amount of time you select. This could be a set number of years or for a lifetime.
Annuity: A contract between an individual and an insurance company. The contract is purchased with a single premium or flexible premiums (several premiums paid over time). The insurance company then begins payments either immediately (immediate annuity) or defers payments (deferred annuity) during what is called an accumulation phase where interest earned is tax-deferred. Various types of annuities include immediate, traditional fixed, fixed-indexed and variable.
Application: The application is the form that must be completed to apply for an annuity with an insurance company. The application gathers personal and financial information required to issue the contract.
Beneficiary: At the time of the application, you will be asked to name a beneficiary. This person will receive the value of the annuity when the owner or annuitant dies.
Caps: The maximum interest rate that will be credited to the contract.
Carrier: Another term used for an insurance company.
Death Benefit: At the time of the application, you will be asked to name a beneficiary. This person will receive the value of the annuity when the owner or annuitant dies, this remaining value is the death benefit.
Deferred Annuity: A deferred annuity which could be a traditional fixed, fixed-indexed or variable annuity has an accumulation phase before beginning the payment phase sometime in the future.
Early Withdrawal Penalty: Another term for surrender charges - A charge outlined in the annuity contract for early withdrawals. The surrender charges typically decrease over time until they reach zero. Most annuity contracts allow for 10% annual withdrawals without surrender charges during the surrender period, amounts in excess of the 10% are subject to this penalty. The most costly time to exceed the 10% surrender free withdrawals is in the first few years of the contract.
Fixed Annuity: With a traditional fixed annuity the insurance company sets a declared interest rate and also has a guaranteed minimum interest rate spelled out in the contract and the principal is protected.
Fixed-Indexed Annuity: A fixed-indexed annuity is an evolution to the Traditional Fixed Annuity in that they both have premium protection and guaranteed minimum interest rates. What makes the FIA unique is how interest is credited to the contract. There is potential for higher interest crediting using an index linked (such as the S&P 500) crediting method that also protects from index declines.
Free Look Period: A period of time after the annuity purchase when you can return your contract to the insurers for any reason without incurring a penalty. The free look rules can differ from state to state but typically you're allowed 10 days.
Free Withdrawal Provision: This allows the owner to make withdrawals from the contract during the surrender charge period without incurring surrender penalties. Most annuity contracts allow for 10% annual withdrawals without surrender charges.
Guarantees: When you purchase an annuity, the guaranteed elements of the annuity are backed by the financial strength and claims paying ability of the issuing insurer. Annuities are regulated by each individual state’s Department of Insurance. Annuities aren't guaranteed by the FDIC or any other federal government agency but there are strict capital and reserve requirements that necessitate insurance companies to hold one dollar in reserve for every dollar in benefits owed.
Immediate Annuity: A contract with an insurance company that is purchased with a single payment. An immediate annuity has no accumulation period like deferred annuities. Payments to the owner begin right away - usually within 30 days. The payments can be structured for a specified length of time, 10, 15 or 20 years for example or for the lifetime of the annuitant.
Income Base: This is the amount used to calculate your income payments under the Guaranteed Lifetime Withdrawal Benefits rider. The Income Base is not available to take as a lump sum and should not be confused with the Account Value. The Income Base is equal to the premium, plus income bonus (if any), in addition to the credited annual rollup rate. Some companies also refer to this as the Benefits Base.
Insurer: The insurance company that is obligated to the terms of the annuity contract you purchase.
Issuer: The insurance company that issues the annuity contract.
Joint and Survivor: This is a payment option that can be selected when annuitizing. It guarantees periodic payments for the life of the annuitant and another (usually their spouse) no matter how long they live.
Life Annuity: This is a payment option that can be selected when annuitizing. It guarantees periodic payments for the life of the annuitant no matter how long they live.
Life Annuity with Period Certain: This is a payment option that can be selected when annuitizing. It guarantees periodic payments for the life of the annuitant. If the annuitant should die in the early years of the payments it also will pay the beneficiary for a specified amount of time.
Life Expectancy: The age a person can expect to live given their current age, gender, health and other factors.
Life Income: Life income is a settlement option that can be elected by the owner of the annuity contract. This option require the insurance company to make regular payments to you for the rest of your life no matter how long you live.
Life Income with a Period Certain: This is a payment option that can be selected when annuitizing. It guarantees periodic payments for the life of the annuitant. If the annuitant should die in the early years of the payments it also will pay the beneficiary for a specified amount of time.
Longevity Risk: The risk associated with outliving your assets.
Margin (Spread): This is a fee found in some indexed annuities that is deducted prior to crediting any index-linked interest to the contract. The margin is typically only charged if the index produced positive interest in that year.
Minimum Guaranteed Interest Rate: This is the minimum interest rate payable and guaranteed in the contract by the insurance company.
Monthly Averaging: Takes and average of 12 index values starting 30 days from the issue date and each month thereafter. The average is then compared to the index starting value to determine the interest to credit to the annuity.
Non-Qualified: Non-qualified means that after tax dollars were used to purchase the annuity.
Owner: The owner is the person that funds the annuity. The owner also names the annuitant and beneficiary.
Participation Rate: For Fixed-Indexed Annuities, the percentage of the index increase that is credited to the annuity. In other words how much of the increase you actually receive.
Period Certain: This is a payment option that can be selected when annuitizing and it described the period of time the annuity will pay regardless of the death of the annuitant. A period certain of 10, 15 or 20 years can be selected for example.
Point to Point: A crediting method that computes the interest by comparing the begin point and the end point of a designated term, then calculates the percentage of change.
Premium: The single lump sum payment or a number of payments made over time into the annuity contract by the owner.
Qualified Annuity: Qualified means that the annuity is purchased with pre-tax dollars.
Riders: Extra features that can be added on to your annuity contract. There can be an additional charge to add a rider to your contract.
Risk Tolerance: An understanding of the amount of uncertainty you are willing to accept. A persons risk tolerance can change over time and is affected by a variety of factors.
Rollover: A Rollover allows you 60 days to reinvest a distribution from an employer-sponsored retirement plan account into a new account and maintain its tax-deferred status.
Rollup Period: This is the number of years the Rollup Rate will be credited to your Income Base in a Guarantee Lifetime Withdrawal Benefit rider. It is important to select a GLWB rider with a Rollup Period that matches your individual retirement needs.
Rollup Rate: This is the percentage that your Income Base will increase during the Rollup Period. This rate can vary by company and product (call for available Rollup Rates in your area). Typically the Rollup Rate is declared at the time the annuity contract is issued with the Guaranteed Lifetime Withdrawal Benefit rider and remains fixed throughout the Rollup Period.
Section 1035 Exchange: A section of the IRS code that allows for the exchange of a policy or contract with one insurance company to that of another without tax consequences. A 1035 exchange can be used to exchange an annuity for another annuity or to exchange a life insurance policy for another life insurance policy or annuity contract.
Single Premium Immediate Annuity (SPIA): An annuity that is purchased with a single payment. An immediate annuity has no accumulation period like deferred annuities. Payments to the owner begin right away - usually within 30 days. The payments can be structure for a specified length of time, 10, 15 or 20 years for example or for a the lifetime of the annuitant.
Surrender Charge: This is a charge outlined in the annuity contract for early withdrawals. The surrender charges typically decrease over time until they reach zero. Most annuity contracts allow for 10% annual withdrawals without surrender charges during the surrender period, amounts in excess of the 10% are subject to this penalty. The most costly time to exceed the 10% surrender free withdrawals is in the first few years of the contract.
Surrender Charge Period: This is the number of contract years a surrender charge may apply.
Tax-Deferred: This means that taxes are not assessed until money is withdrawn from the annuity.
Variable Annuity: With a variable annuity the owner of the annuity assumes the risk of the underlying investments. The owner of a variable annuity chooses from a selection of investments called sub-accounts and assumes the risk and fees associated with them.
Withdrawal Charge: Another term for surrender charges - A charge outlined in the annuity contract for early withdrawals. The surrender charges typically decrease over time until they reach zero. Most annuity contracts allow for 10% annual withdrawals without surrender charges during the surrender period, amounts in excess of the 10% are subject to this penalty. The most costly time to exceed the 10% surrender free withdrawals is in the first few years of the contract.
Withdrawal Percentage: The percentage of your Income Base you receive when you begin your withdrawals. This percentage typically gets higher the longer you delay taking the lifetime withdrawals. In most cases, taking out excess withdrawals in any given year will reduced the guaranteed income you may withdraw under the rider.

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