EXPLORE: Annuity Glossary

Annuities are financial products that provide a stream of income,  typically used for retirement purposes. Understanding the various terms associated with annuities can help individuals make informed decisions. The Annuity Glossary* covers a comprehensive range of terms related to annuity products. 

* See the Annuity Glossary Terms of Use at the bottom of this page.

A

Accumulation Phase 

The period during which an annuity owner makes contributions to the annuity and the account value grows on a tax-deferred basis.

Annuitant

The person whose life expectancy is used to calculate the annuity payments.

Annuitization

The process of converting the accumulated value of an annuity into a stream of periodic payments.

Annuitization Options

Choices available to the annuity owner for receiving payments, such as lifetime income or a fixed period.

Annuity

A financial product that provides regular payments, typically for retirement income, in exchange for a lump-sum payment or a series of payments.

Annuity Beneficiary 

The person designated to receive the remaining annuity benefits upon the death of the annuitant.

Annuity Certain 

An annuity that guarantees payments for a specified period regardless of whether the annuitant lives or dies during that period.

Annuity Contract 

A written agreement between the annuity owner and the insurance company detailing the terms and conditions of the annuity.

Annuity Owner  

The individual or entity that purchases the annuity and holds the contractual rights.

Annual Reset

A method used in indexed annuities where the index value is reset annually to determine interest credits.

B

Beneficiary

The individual or entity designated to receive benefits upon the death of the annuitant or contract owner.

Bonus Annuity 

An annuity that offers an upfront bonus on the initial premium paid, often used as an incentive to purchase the product.

Base Contract 

The standard form of the annuity without additional riders or optional benefits.

C

Cap Rate  

In indexed annuities, the maximum rate of interest that can be credited to the annuity in a given period.

Cash Surrender Value  

The amount available in cash upon cancellation of an annuity contract before annuitization.

Commutation 

The process of converting future annuity payments into a lump-sum payment.

Contract Owner

The person or entity that holds the rights to the annuity contract.

D

Death Benefit

The amount paid to the beneficiary upon the death of the annuitant or contract owner.

Deferred Annuity 

An annuity that starts making payments at a future date, allowing for a period of accumulation.

Distribution Phase  

The period during which the annuity starts to make periodic payments to the annuitant.

E

Equity-Indexed Annuity (EIA) 

An annuity that earns interest based on the performance of a specified stock market index.

Exclusion Ratio  

The portion of each annuity payment that is considered a return of principal and is not subject to income tax.

Enhanced Death Benefit

A feature that provides an increased death benefit compared to the standard amount, often for an additional cost.

F

Fixed Annuity 

An annuity that provides regular, guaranteed payments based on a fixed interest rate.

Flexible Premium Annuity 

An annuity that allows the owner to make periodic premium payments rather than a single lump-sum payment.

Free-Look Period 

A specified period during which the annuity owner can cancel the contract without penalty.

G

Guaranteed Minimum Income Benefit (GMIB) 

A feature that guarantees a minimum level of income regardless of the annuity's investment performance.

Guaranteed Minimum Withdrawal Benefit (GMWB) 

A feature that guarantees the ability to withdraw a minimum amount each year, even if the annuity's value drops.

Guaranteed Return  

The minimum return guaranteed by the insurance company on a fixed annuity.

H

Hybrid Annuity  

An annuity that combines features of both fixed and variable annuities, offering both a guaranteed minimum return and the potential for higher returns based on investment performance.

I

Immediate Annuity 

An annuity that begins making payments almost immediately after the initial premium is paid.

Income Rider  

An optional feature that provides additional income benefits, often for a higher fee.

Index  

A statistical measure of changes in a representative group of individual data points, used in indexed annuities to determine interest crediting.

Indexed Annuity 

An annuity that credits interest based on the performance of a specified index, such as the S&P 500.

Inflation Protection 

A feature that increases annuity payments to keep pace with inflation.

J

Joint and Survivor Annuity  

An annuity that continues to make payments as long as either of the two annuitants is alive.

Joint Life Annuity

An annuity that makes payments based on the lives of two individuals, continuing until the death of the second annuitant.

L

Lifetime Income Benefit 

An option that provides guaranteed income for the lifetime of the annuitant.

Liquidity

The ease with which an annuity can be converted to cash without significant loss of value.

M

Market Value Adjustment (MVA)

A feature that adjusts the value of withdrawals from an annuity based on changes in interest rates.

Mortality and Expense (M&E) Risk Charge  

A fee charged by the insurance company to cover the risk of guaranteeing lifetime income and administrative expenses.

Minimum Guaranteed Interest Rate 

The lowest interest rate that an insurance company guarantees to pay on an annuity.

Multi-Year Guaranteed Annuity (MYGA)
A fixed annuity with a guaranteed interest rate for a set term, offering predictable growth. At term end, options include renewal, conversion, or withdrawal. 

N

Non-Qualified Annuity 

An annuity purchased with after-tax dollars, as opposed to a qualified annuity which is funded with pre-tax dollars.

Nursing Home Waiver 

A provision that allows annuity owners to withdraw funds without penalty if they enter a nursing home.

P

Payout Options 

The various ways an annuity can be structured to make payments to the annuitant, such as lump sum, fixed period, or lifetime.

Period Certain Annuity  

An annuity that pays income for a specified period of time, regardless of whether the annuitant lives or dies during that period.

Premium 

The payment or payments made to purchase an annuity.

Principal Protection  

A feature that ensures the original investment in the annuity is protected from loss.

Q

Qualified Annuity

An annuity purchased with pre-tax dollars, often within a retirement plan like an IRA or 401(k).

Qualified Longevity Annuity Contract (QLAC) 

A type of deferred annuity funded with qualified retirement savings that begins payments at an advanced age, often used to ensure income later in life.

R

Rider 

An optional feature or add-on to an annuity that provides additional benefits or features, usually for an extra cost.

Roll-Up Rate  

The guaranteed rate at which the benefit base of a guaranteed living benefit rider grows.

Rollover

The process of transferring funds from one retirement account to another without incurring taxes.

S

Single Premium Immediate Annuity (SPIA) 

An immediate annuity funded with a single lump-sum payment that begins to pay out almost immediately.

Surrender Charge  

A fee charged for withdrawing funds from an annuity before a specified period.

Survivor Benefit

A feature that continues payments to a beneficiary after the annuitant's death.

T

Tax-Deferred  

A feature of annuities where taxes on earnings are deferred until withdrawals are made.

Two-Tier Annuity 

An annuity with different values for accumulation and payout, often used to encourage annuitization.

V

Variable Annuity  

An annuity that allows the owner to invest in a range of investment options, with the payout depending on the performance of the investments.

Vesting

The process by which the annuitant earns the right to receive certain benefits from the annuity.

W

Withdrawal Charge

A fee imposed for taking out funds from an annuity before a specified time or amount is reached.

Withdrawal Percentage  

The percentage of the annuity's value that can be withdrawn without incurring surrender charges.

Waiver of Premium Rider  

A rider that allows the annuity owner to stop making premium payments without losing coverage in the event of disability or other qualifying events.

The Annuity Glossary is intended for informational purposes only and should not be considered financial or legal advice. Individuals and businesses should consult with a qualified financial advisor or professional before making any decisions regarding annuities. The terms included in this glossary may be updated periodically to reflect the latest changes and additions. For the most current and personalized advice, always seek professional guidance.

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