05 Sep Annuity Glossary: Your Essential Reference for Understanding
Annuity Glossary
Welcome to our comprehensive glossary of annuity terms, by The Policy Shop! Whether you’re new to the world of annuities or a seasoned investor looking to deepen your understanding, this resource is designed to provide clarity on the language and concepts commonly encountered in annuity contracts. Annuities offer unique opportunities for retirement planning, wealth preservation, and financial security, but navigating the terminology can be daunting. That’s why we’ve compiled this alphabetical glossary to serve as your go-to reference guide. From “accumulation phase” to “yield,” we cover everything you need to know to make informed decisions about annuities. Whether you’re exploring fixed annuities, variable annuities, or indexed annuities, our glossary will help demystify the terminology, empowering you to navigate the annuity landscape with confidence. So, whether you’re a policyholder, financial advisor, or simply curious about annuities, dive in and enrich your understanding with our comprehensive glossary.
A
- Accumulation Phase: The period during which funds are contributed to an annuity contract and accumulate interest or investment returns.
- Annuitant: The individual whose life expectancy determines the duration and amount of annuity payments.
- Annuity: A financial product designed to provide a series of payments to the annuitant, typically during retirement.
- Annuity Contract: The legal document outlining the terms and conditions of the annuity, including payment amounts, duration, and any optional features.
- Asset Allocation: The process of dividing investments among different asset classes to manage risk and achieve specific investment objectives within an annuity.
B
- Beneficiary: The person or entity designated to receive death benefits or remaining annuity payments upon the annuitant’s death.
- Surrender Charge: A fee imposed by the insurance company for early withdrawal of funds from an annuity contract, typically during the surrender period.
C
- Contract Owner: The individual or entity that purchases the annuity and holds the rights to the contract.
- Death Benefit: The amount paid to the beneficiary upon the annuitant’s death, which may include the account value or a guaranteed minimum.
- Deferred Annuity: An annuity where payments to the annuitant are postponed until a future date, often used for retirement planning.
- Distribution Phase: The period during which annuity payments are made to the annuitant, typically after the accumulation phase.
- Guaranteed Minimum Income Benefit (GMIB): A rider or feature that guarantees a minimum level of income payments regardless of investment performance.
D
- Deferred Sales Charge: A fee charged upon withdrawal of funds from an annuity contract during the early years of the contract.
- Fixed Annuity: An annuity that provides a guaranteed interest rate and fixed payments to the annuitant.
- Free Look Period: A period of time after purchasing an annuity during which the contract owner can review the terms and cancel the contract without penalty.
E
- Equity-Indexed Annuity: An annuity whose returns are linked to the performance of a stock market index, providing potential for higher returns with downside protection.
F
- Flexible Premium Annuity: An annuity that allows the contract owner to make additional premium payments beyond the initial purchase payment.
- Fixed Index Annuity: An annuity that offers a minimum guaranteed interest rate combined with the potential for higher interest earnings based on the performance of an index.
G
- Guaranteed Lifetime Withdrawal Benefit (GLWB): A rider or feature that guarantees a minimum level of withdrawals for the annuitant’s lifetime, regardless of account value.
H
- Holdback: A portion of interest or gains that may be withheld by the insurance company as a fee or reserve, especially in indexed or variable annuities.
I
- Immediate Annuity: An annuity where payments to the annuitant begin shortly after the contract is purchased, typically within one year.
- Inflation-Indexed Annuity: An annuity that provides payments adjusted for inflation, offering protection against rising living costs during retirement.
J
- Joint and Survivor Annuity: An annuity payout option where payments continue to a secondary annuitant (usually a spouse) after the primary annuitant’s death.
K
- Kicker: An additional bonus or enhancement offered by the insurance company to incentivize the purchase of an annuity contract.
L
- Living Benefit Rider: A rider or feature that provides additional benefits to the annuitant, such as long-term care coverage or enhanced death benefits, while alive.
M
- Maturity Date: The date when the annuity payments begin or the contract reaches the end of its accumulation phase.
N
- Non-Qualified Annuity: An annuity funded with after-tax dollars, often used for retirement savings outside of qualified retirement accounts like IRAs or 401(k)s.
O
- Owner-Driven Annuity: An annuity where the contract owner retains control over investment decisions within the annuity, typically associated with variable annuities.
P
- Principal: The original amount of money invested in the annuity contract, excluding interest or gains.
- Premium: The payment made by the contract owner to purchase the annuity contract or additional premium payments made during the contract term.
Q
- Qualified Annuity: An annuity funded with pre-tax dollars, often purchased within a qualified retirement plan such as an IRA or 401(k).
R
- Rider: An optional feature or provision added to an annuity contract to customize the terms and benefits, often for an additional cost.
- Required Minimum Distribution (RMD): The minimum amount that must be withdrawn from a retirement account, including annuities, once the account owner reaches a certain age (usually 72).
S
- Single Premium Annuity: An annuity funded with a single lump-sum payment from the contract owner.
- Surrender Period: The period of time during which surrender charges apply if funds are withdrawn from the annuity contract.
- Systematic Withdrawal: A strategy for receiving regular income from an annuity by withdrawing a set amount at regular intervals.
T
- Tax-Deferred Growth: The earnings within an annuity grow tax-deferred until withdrawn, allowing for potential accumulation of funds over time.
- Terminal Illness Rider: A rider or feature that allows the annuitant to access a portion of the annuity’s death benefit if diagnosed with a terminal illness.
U
- Underwriting: The process by which the insurance company evaluates an applicant’s risk factors and determines eligibility for an annuity contract.
V
- Variable Annuity: An annuity that offers investment options where the returns are subject to market fluctuations, providing potential for higher returns but also higher risk.
- Vesting: The process by which the annuity contract owner gains ownership rights to the annuity’s benefits over time, typically related to employer-sponsored annuities.
W
- Withdrawal Charge: A fee imposed by the insurance company for withdrawing funds from an annuity contract, especially during the early years of the contract.
Y
- Yield: The annualized rate of return on an annuity, taking into account interest, dividends, and capital gains, expressed as a percentage of the investment.
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