Annuity Terms Dictionary

Last updated: October 7, 2015

Definitions of Technical Terms

Accumulation Period

The period between a policyholder’s purchase of a deferred annuity and the beginning of the payout period.

Annuitant

The named individual whose lifetime is used as the measuring life in a life annuity.

Annuitize

To begin a series of payments from the capital that has built up in an annuity. The payments may be a fixed amount, or for a fixed period of time, or for the lifetimes of one or two annuitants.

Annuity

A contract under which an insurance company promises to make a series of periodic payments to a named individual in exchange for the payment of a premium or series of premiums.

Annuity Contract Replacement

Replacement is any transaction in which you purchase a new annuity contract which results in a substantial reduction in benefits available under an existing annuity, such as termination of an existing annuity or making withdrawals in order to fund the purchase of a new contract.

Annuity Illustration

A personalized text-and-graphics presentation or depiction of how an annuity may perform over time based on non-guaranteed contract elements, such as premiums, interest credits and contract charges.

Beneficiary

The designated individual(s) assigned to receive the benefits from an annuity after the owner of the annuity dies.

Bonus Rate

Additional interest credited to an annuity, often during the first year the annuity is in force. This extra amount is above the interest rate to be credited beginning with the second year and the remaining years that the annuity is in force. The extra rate is paid in the first year as an effort to attract new annuitants. See also "Initial Rate" and "Renewal Rate".

Deferred Annuity

An annuity that can be purchased either with a single premium or a series of premiums and which the payout period begins at a specified later date.

Flexible Premium Annuity

An annuity that is purchased by the payment of periodic premiums that can vary between a set minimum amount and a set maximum amount with no fixed schedule for payment of premiums. For example, premiums can be paid for 10 straight months, then not paid for the next 10 months, then paid every other month, or any combination thereof.

Free Withdrawal

The ability to withdraw money from an annuity without being penalized or charged a withdrawal fee.

Immediate Annuity

An annuity that begins payments after a single premium is paid. For example, the annuitant pays a single premium of $100,000 on June 1 and begins receiving a monthly income of $1200 for life starting July 1.

Income for Life Annuity

An annuity that pays income for your lifetime and doesn't make any payments to anyone after you die.

Income for Two Lives Annuity

See "Joint & Last Survivor Payment Option"

Indexed Annuity

A type of fixed annuity which earns interest or provides benefits that are linked to an external reference, such as a stock index. The interest is linked to the changes in the index and can provide a potentially greater return than traditional fixed annuities.

Inital Rate

The guaranteed interest rate that is assigned to the first period of a fixed annuity.

Joint & Last Survivor Payement Option

Pays income guaranteed for the rest of your life and the life of another person, such as your spouse. Also known as "lifetime income for two".

Life Annuity With Period Certain Payment Option

Pays income as long as you live and guarantees to make payments for a defined number of years.

Life Only Payment Option

Payments made from an annuity during the annuitant's lifetime. No payments are made to a beneficiary after the annuitant's death.

Market Value Adjustment

An increase or decrease in surrender charge of the life insurance policy or annuity contract depending on the current financial markets.

Minimum Guaranteed Rate

The lowest interest rate you annuity will earn, as stated in the annuity contract.

Multiple Premium Annuity

An annuity under which multiple payments are made before the annuity is paid up. Multiple premium only apply to deferred annuities, not immediate annuities.

Non-Qualified Annuity

An annuity that is not designated as “qualified” by the Internal Revenue Service and is purchased with after-tax dollars.

Payout Period

Payout period: The period during which an insurer makes annuity payments.

Period Certain Payment Option

Pays income for a defined period of time, usually 10 or 20 years. Should you die before the period certain is expired, your beneficiary will receive the remaining payments.

Premium

The payment(s) made into an annuity upon which interest grows tax-deferred.

Principal

A sum of money that is invested over a period of time.

Prospectus

A legal document issued by the insurance company that outlines the details of a variable annuity.

Qualified Annuity

An annuity designated by the Internal Revenue Service as eligible for tax deduction and is funded with pretax dollars.

Renewal Rate

The guaranteed interest rate that is set after the first period of a fixed annuity has expired. A new interest rate may be set each time the annuity is renewed.

Scheduled Premium Annuity

An annuity with structured premium payments over a specified period of time. For example, an annuity contract may outline that an annuitant pay a specified amount once each month for 10 years.

Single Premium Annuity

An annuity under which one premium payment is made and the annuity is paid up (no further premium payments are required). Applies to both deferred annuities and immediate annuities.

Surrender or Withdrawal Charge

A charge an insurance company imposes on certain withdrawals, including partial and full surrenders a policyholder makes from the accumulated value of a deferred annuity.

Systematic Withdrawal

An option that allows annuitized funds to be automatically withdrawn from your annuity.

Tax-Deferred Accumulation

A system in which money earned in an annuity is not taxed until it is withdrawn from the account.

Tax-Free Exchange

Also known as “1035 Exchange,” this section of the Internal Revenue Code allows funds in one annuity to be transferred directly to another annuity tax-free.

Tax-Sheltered Annuity (TSA)

An annuity option available to certain employees of educational, cultural, and nonprofit organizations, such as religious groups. Contributions are made by payroll deduction on a pretax basis and the growth is deferred.

Variable Annuity

The returns of a variable annuity depend on the performance of the investment or funding options the annuity is linked to, which can increase, decrease, or even lose money.

Withdrawal

Money taken out of an annuity.

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