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Annunity Retirement Glossary

Annuity Glossary

What is an Annuity:  An annuity is a contract between you and an insurance company that allows your earnings to grow and compound tax-deferred. This is a powerful benefit that you can use to help you accumulate wealth for your retirement or other long-term financial goals. The word annuity literally means "annual payments". When you buy an annuity, the insurance company agrees to pay you an income for a specified period of time. Whether these income payments start right away, or at some future date, determines what type of annuity you have; either deferred or immediate.

Annuitant: The individual upon whom the contract’s life is based. This individual has no rights to direct or alter the contract in any way. Should the annuitant pass away, the contract must be paid out to the annuitant’s beneficiary as a death claim, or continued by the annuitant’s spouse if listed as annuitant’s beneficiary.

Annuitization: This process of converting an annuity into a guaranteed income stream for an annuitant's life or a specific period of time.

Annuity: The systematic liquidation of principal and interest over time. It is a contract issued by an insurance company that accomplishes this purpose.

Back-end Load: See "Surrender Charge". Beneficiary: The person or persons named by the owner to receive the death benefit in an annuity or other life insurance product.

Contingent Annuitant: The individual who assumes the policy should the primary annuitant pass away. This is required for annuitants over the age of 85.

Contingent Beneficiary: The person who replaces the listed beneficiary should that individual be deceased at the time of the owners or owners or annuitant’s death for subsequent pay out or transfer of ownership.

Deferred Annuity: An annuity purchased with either periodic premiums or a single premium that defers payment for a period of time.

Deferred Variable Annuity: A variable annuity that has an accumulation period before a payout begins.

Exclusion Ratio: A tax term that means the investment in the contract divided by the expected return. This portion of each annuity payment is excludable from gross income.

Expected Return: Annuity is based on the periodic payment and the annuitant’s life expectancy when benefits begin.

Fixed-Amount Payments: Periodic payments made in a specified amount, which will completely exhaust a principal sum.

Fixed Annuity: An annuity that provides a pay-out expressed as a fixed dollar amount.

Fixed-Period Payments: Refers to periodic payments made over a specified period that will completely exhaust a principal sum.

Flexible-Premium Deferred Annuity: An annuity purchased with periodic premiums which may vary in future payout amounts.

Front-End Load: An expense charge made at the inception of an annuity contract.

Guaranteed Interest Rate: In a fixed annuity, the minimum interest rate (e.g., 3%) that is guaranteed by the insurance company to be credited each year to the cash value.

Immediate Annuity: An annuity purchased with a single premium with benefits to begin one payment interval (month, year) after the premium is paid.

Installment Refund Annuity: An annuity in which the un-recovered purchase price is refunded at the annuitant’s death by continuing the regular annuity payments to a beneficiary.

Interest-Out-First Rule: A federal tax rule that treats a premature withdrawal from an annuity contract as taxable interest rather than nontaxable principal.

Investment in the Contact: A tax term that means the net amount (cost) that the owner has invested in the annuity contract.

Joint Life Annuity: An annuity that terminates benefit payments at the first death two or more annuitants.

Joint Owner: A joint owner allows for more freedom in the direction of the contract, but requires both owners to sign and approve all documents.

Joint-and-Survivor Annuity: An annuity that covers two or more annuitants and that pays benefits until the last annuitant dies.

Life Annuity: An annuity in which the payout is based on life contingencies or life expectancy.

Life Annuity with Period Certain: A life annuity with a guarantee that specifies a minimum number of payments will be made even f the annuitant dies prematurely.

Loads: The expenses charged against an annuity contract that offset part of the premium or cash value.

Premature Withdrawal: A withdrawal of cash value before age 59 1/2 (with certain exceptions).

Refund Annuity: An annuity that returns all or part of the purchase price at the annuitant’s death.

Separate Account: In a variable annuity, the account maintained separately from the insurer’s general (investment) account, which allows investment results to be reflected directly in variable annuity contracts.

Single-Premium Deferred Annuity: An annuity purchased with a single, lump-sum premium payment which earns interest for a period of years before the payout period begins.

Single-Premium Immediate Annuity: An annuity purchased with a single, lump-sum premium payments which begins to pay out benefits one payment interval (month, year) after this premium is paid.

Straight Life Annuity: An annuity that terminates at the annuitant’s death.

Surrender Charge: A charge made for a partial or full withdrawal from an annuity contract before the annuity starting date; often scales down over time.

Variable Annuity: An annuity that provides a payout that may vary in value.

Last updated on Thu, 07/08/2004 - 03:29.
Site last updated 01/07/2018