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Annuities terms
Fixed, indexed, variable and income annuities sold by life insurers.
Accumulation phaseThe years when money in a deferred annuity grows tax-deferred before payments begin, ending at annuitization or when withdrawals start.AnnuitantThe person whose life expectancy determines an annuity's payments; lifetime income is usually measured by that person's life.AnnuitizationConverting an annuity's account value into a stream of guaranteed payments for life or a set period, usually giving up access to the lump sum.AnnuityA contract with a life insurer that grows savings tax-deferred, turns them into guaranteed income, or both, in exchange for one or more payments.Bonus annuityAn annuity that adds an extra percentage to the premium or the first-year rate, usually offset by longer surrender periods, vesting rules or lower caps.Cap rateThe maximum rate an indexed universal life policy or indexed annuity will credit for a period, no matter how much the linked index rises.Crediting rateThe interest rate an insurer applies to the cash value of a universal life policy or the balance of a fixed annuity for a given period.Deferred annuityAn annuity that grows tax-deferred for years before income begins, used to build retirement savings or lock in future lifetime payments.Exclusion ratioThe fraction of each annuity payment treated as a tax-free return of the buyer's own money, found by dividing cost basis by expected total payments.Fixed annuityAn annuity that credits a rate set by the insurer, with principal protected from market losses, either deferring growth or paying fixed income.FloorThe minimum rate an indexed universal life policy or indexed annuity credits for a period, often 0%, so index losses don't reduce the credited interest.Free withdrawal provisionAn annuity clause that lets you take out a set share of the contract value each year, often 10%, without paying a surrender charge.Guaranteed interest rateThe lowest rate an insurer promises to credit on cash value or annuity funds for the life of the contract, no matter how far market rates fall.Guaranteed lifetime withdrawal benefit (GLWB)An annuity rider that lets you withdraw a set percentage of a benefit base every year for life, even if the account value runs out.Guaranteed minimum death benefitA variable annuity feature that pays heirs at least a set floor, such as premiums paid minus withdrawals, even if the account has lost value.Immediate annuityAn annuity bought with a lump sum that starts paying income within about a year, for life or a set period, in exchange for giving up access to the money.Index crediting methodThe formula an indexed annuity or IUL policy uses to turn an index's movement into interest, such as annual point-to-point or monthly average.Indexed annuityA fixed annuity whose interest is tied to a market index's gains, limited by caps or participation rates, with a floor that shields it from index losses.Joint and survivor annuityAn annuity that pays income for as long as either of two people lives, often at a reduced amount after the first death, such as 50% or 100%.Life-only annuityAn annuity that pays income for one person's lifetime and stops at death, with no refund or payments to heirs, in exchange for the highest payout.Market value adjustment (MVA)A change to an annuity's surrender value on early withdrawal, up if interest rates have fallen since purchase and down if they have risen.Mortality and expense (M&E) chargeAn annual variable annuity fee, charged as a percentage of account value, that pays for the insurer's guarantees, sales costs and administration.Multi-year guaranteed annuity (MYGA)A fixed deferred annuity that locks in one interest rate for a set term, often three to 10 years, much like a bank CD but issued by an insurer.Non-qualified annuityAn annuity bought with after-tax money outside an IRA or employer plan; earnings grow tax-deferred, and only the gains are taxed when withdrawn.Participation rateThe percentage of an index's gain that an indexed annuity or IUL policy credits as interest, such as 80% of a 10% rise, or 8%.Period certainAn annuity payout feature that guarantees payments for a set number of years, paying a beneficiary if the annuitant dies before that time is up.Qualified annuityAn annuity bought with pre-tax retirement money, such as inside an IRA or 401(k), so withdrawals are taxed as income and minimum distribution rules apply.Required minimum distribution (RMD)The minimum amount the IRS requires you to withdraw each year from traditional IRAs and most workplace retirement plans once you reach a set age.RILAA deferred annuity, registered as a security, whose returns track a market index with partial downside protection and capped upside.SPIAAn annuity bought with one lump sum that starts paying guaranteed income within a year, often for life, in exchange for giving up access to the money.SubaccountAn investment option inside a variable annuity or variable life policy, similar to a mutual fund, whose value rises and falls with its holdings.Surrender periodThe years after purchase during which cancelling or over-withdrawing from an annuity or permanent policy triggers a surrender charge.Variable annuityAn annuity whose value is invested in market subaccounts, so it can grow or lose money, with optional riders that guarantee income or a death benefit.