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

Acceleration Clause
A provision in an annuity contract that allows the insurer to expedite benefit payments under certain conditions, such as in the event of terminal illness or long-term care needs.

Account Value
The total value of an annuity, which includes premiums paid, any interest or investment gains, and any applicable rider benefits, minus any withdrawals, fees, or charges. This is the amount used to calculate future payments or to determine the annuity’s cash surrender value.

Accumulation Period
The period during which an annuity contract is being funded, either through lump sum payments or periodic contributions. During this time, the annuity’s value grows, typically on a tax-deferred basis.

Accumulation Phase 

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

Accumulation Value
The current value of an annuity, reflecting contributions and any earnings, such as interest or market performance, but not yet converted into periodic payments.

Accrued Interest
Interest that has accumulated on an annuity but has not yet been paid out, often referenced when calculating withdrawals or assessing the contract’s current value.

Actuarial Assumptions
The calculations used by insurance companies to determine the premium, benefits, and payment amounts for an annuity based on factors like life expectancy, interest rates, and market performance. These assumptions help the insurer set appropriate pricing for annuity contracts.

Alternative Investment
Investment options within variable annuities or hybrid annuities that may include real estate, commodities, or other non-traditional assets, beyond stocks and bonds.

Annual Reset

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

Annuitant

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

Annuitant’s Age
The age of the individual whose life expectancy is used to determine the annuity payout schedule. This can affect the payment amount and terms of the annuity.

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.

Annuitization Period
The length of time over which  the annuity's payments will be made to the annuitant, which can be for a  fixed period or for the annuitant's lifetime. 

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 Benefit Base
The amount used to calculate certain riders or guaranteed income benefits. The benefit base may differ from the actual cash value of the annuity and is often used to determine income guarantees.

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 Laddering
A strategy of purchasing multiple annuities at different times or with varying start dates, in order to create a series of income streams that may match different retirement needs or time frames.

Annuity Owner  

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

Annuity Payee
The individual or entity receiving the periodic payments from an annuity, usually the annuitant.

Annuity Payment Schedule
The specific timeline over which annuity payments are made, such as monthly, quarterly, or annually, and whether they are fixed or variable.

Annuity Payout Factor
A numerical value used to calculate the amount of the periodic annuity payments based on factors such as the annuitant’s age, gender, and life expectancy.

Annuity Payout Option
The selection available to the annuity holder for how they want to receive their income from the annuity, which could include options like lifetime income, a fixed period, or lump-sum payments.

Annuity Settlement Option
A specific choice made by the annuitant regarding how annuity payments will be distributed. This can include options like fixed period, lifetime income, joint life, or lump-sum distributions.

Assumed Interest Rate (AIR)
A hypothetical interest rate used in the calculation of the future value of a variable annuity's payments, based on the expected performance of the underlying investments.

B

Back-End Load
A type of fee or charge that applies when withdrawing funds from an annuity, typically imposed during the early years of the contract. It's often referred to as a surrender charge. 

Base Contract 

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

Beneficiary

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

Beneficiary Designation
The process of naming the individual or entity that will receive the annuity benefits in the event of the annuitant's death.

Beneficiary Rider
An optional rider that ensures that additional death benefits are paid to the beneficiary upon the annuitant’s death, often for an extra fee.

Bond Fund Annuity
A type of variable annuity in which the underlying investments are primarily in bond funds. These annuities may appeal to investors seeking lower risk compared to stock-based funds.

Bonus Annuity 

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

Bonus Rate
The percentage added to the initial deposit or premium in a bonus annuity, which is often used as an incentive to attract new investors. The bonus is typically added to the  accumulation value and may be subject to certain conditions or surrender charges.

C

Cap Rate  

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

Capital Gain
Profit from the sale of an asset or investment that has increased in value, often relevant in variable annuities when the investments grow based on market performance.

Capital Gains Tax
A tax on the profit from the sale of assets or investments within an annuity. Annuities generally allow for tax-deferred growth, meaning capital gains tax is due only when  funds are withdrawn.

Capital Preservation Strategy
An investment strategy focused on protecting the principal invested in an annuity, ensuring  that the annuity holder’s initial investment is maintained even if the market experiences downturns. Fixed annuities often emphasize this strategy.

Cash Surrender Value  

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

Chronic Illness Rider
A rider that allows annuity holders to access a portion of their annuity value if they are diagnosed with a chronic illness, often without triggering surrender charges.

Claim Form
The document that must be completed by a beneficiary or annuitant in the event of the annuitant’s death, or when a payout is requested, to initiate the process of receiving benefits. 

Commutation 

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

Contingent Annuity
An annuity that only begins making payments if a certain condition is met, such as the death of a spouse, or upon the annuitant reaching a certain age or health status.

Contingent Beneficiary
An individual or entity designated to receive the annuity benefits if the primary beneficiary is no longer alive at the time of the annuitant's death.

Contingent Deferred Annuity (CDA)
An annuity that provides income starting at a later date but guarantees a minimum level  of income should the annuitant experience financial hardship or other qualifying circumstances before payments begin.

Contract Owner

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

Conversion Option
An option in a deferred annuity contract that allows the owner to convert their annuity into an income stream (annuitization) at a later date, often without additional underwriting. 

Cost-of-Insurance (COI)
A charge deducted from the value of the annuity, particularly in variable annuities, which helps cover the cost of any insurance guarantees or riders attached to the policy.

Cost of Insurance (COI) Fees
The fees charged by the insurance company to provide life insurance protection or other  guarantees in variable annuities with insurance features, such as death benefits or living benefits.

Cost-of-Living Adjustment (COLA)
A rider or feature that automatically increases the annuity payments over time to keep pace with inflation, ensuring the purchasing power of the annuity payments is maintained.

Credit Rating
A measure of the financial strength of the insurance company issuing the annuity, which reflects the likelihood that the insurer will meet its financial obligations, including paying annuity benefits.

Crediting Method
The process by which an annuity determines how interest is applied to the contract’s value. In indexed annuities, this could be a fixed rate, a percentage of the index’s performance, or an annual reset.

Cross-Purchase Option
An annuity provision that allows the transfer of ownership from one individual to another, often seen in business buy-sell agreements where a company buys back an employee’s annuity interest.

Cumulative Bonus
A feature in certain annuities where the insurance company credits a bonus to the annuity’s value each year, often based on the performance of the underlying investments or a percentage of premiums paid.

D

Death Benefit

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

Death Benefit Guarantee
A guarantee that the beneficiary will receive a minimum amount upon the annuitant’s death, typically the greater of the initial investment or the account value at death.

Death Benefit Option
A rider or feature that determines the payout to the beneficiary upon the death of the annuitant. It could be a return of premiums, the value of the account, or a fixed percentage of the initial premium.

Death Benefit Rider
An optional rider that ensures a death benefit will be paid to the beneficiary if the annuitant dies before annuitization, often including a guaranteed minimum value regardless of market performance.

Deferred Annuity 

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

Deferred Income Annuity (DIA)
A type of annuity in which the annuitant makes a lump sum payment or series of payments, but  the annuity payments do not begin until a future date, often many years into the future. It is often used to provide income later in life.

Direct Transfer
The process of moving funds from one retirement account to another (e.g., from an IRA to a Qualified Longevity Annuity Contract), which allows the funds to retain their tax-deferred status.

Distribution Phase  

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

Diversification
The process of spreading investments  across different asset classes (such as stocks, bonds, or real estate) within a variable annuity to manage risk and enhance potential returns.

Dividend Option
A feature in some annuity contracts, particularly those linked to life insurance, that allows the owner to choose how to use dividends—either reinvesting them, receiving them in  cash, or applying them to reduce future premiums.

Dividend-Paying Annuity
An annuity that pays dividends to the annuitant, often based on the insurer’s profitability, and typically reinvested into the annuity or paid out in cash.

Dividend Payout Option
An option that allows an annuity holder to receive dividends (if applicable) generated from the underlying investments or from a participating insurance company as cash or reinvested into the annuity. 

Dollar-Cost Averaging (DCA)
An investment strategy often used in annuities where the owner invests a fixed amount at regular intervals, regardless of the price of the underlying asset, helping to mitigate market volatility.

Dollar-for-Dollar
A term used to describe the rate at which funds are transferred into or out of an annuity, especially during exchanges or rollovers, without penalties or losses in value.

Duration of Payments
The period over which an annuity will make payments to the annuitant. This can be a fixed period, for life, or until a certain event occurs (e.g., death, or reaching a specific age).

E

Early Withdrawal Penalty
A fee or tax penalty for withdrawing funds from an annuity before a specified age or time frame, typically before age 59½.

Equity-Indexed Annuity (EIA) 

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

Exclusion Period
The time during which an annuity holder cannot access certain benefits, such as income or withdrawals, often specified by the terms of an insurance rider or other guarantee feature.

Exclusion Ratio  

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

Employer-Sponsored Annuity
An annuity offered through an employer's retirement plan, such as a 401(k), which may  include annuity options for retirement income or specific annuity products designed for employees.

Enhanced Death Benefit

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

F

Fixed Account Option
An investment choice within a variable annuity where the money is allocated to a fixed, guaranteed interest rate account, providing principal protection and predictable returns. 

Fixed Annuity 

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

Fixed Income Annuity
An annuity that provides guaranteed income payments at regular intervals for a specified period, based on a fixed interest rate, with no market exposure.

Fixed Indexed Annuity
A type of annuity that combines features of fixed and variable annuities, offering a guaranteed minimum return while providing the opportunity to earn interest based on the performance of a market index.

Fixed Period Option
An annuity payment option where the annuity makes regular payments for a fixed period, such as 10 or 20 years, regardless of the annuitant’s life.

Fixed-Rate Annuity
An annuity that offers a guaranteed interest rate for a specified period, providing predictable growth of the annuity’s value. This can be a good option for those seeking a stable income stream or low-risk investment.

Flexible Premium Annuity 

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

Flexible Withdrawal
A feature in some annuities that allows the annuity holder to take withdrawals as needed, rather than adhering to a fixed schedule. These withdrawals may be subject to limitations and fees depending on the annuity contract.

Flexible Withdrawal Option
An option within an annuity contract that allows the owner to make withdrawals at any time and in any amount, subject to specific terms or limits, rather than adhering to a fixed payment schedule.

Free-Look Period 

A period, typically 10 to 30 days after purchasing an annuity, during which the buyer can review the contract and cancel it for a full refund without penalty.

Free Withdrawal Provision
A provision in an annuity that allows the annuity holder to take a certain percentage (typically 10%) of the account value each year without incurring a surrender charge.

G

Gains Lock
A feature in some indexed annuities that allows the policyholder to lock in gains periodically, ensuring that previous market gains are not lost, even if the market decreases.

Guaranteed Income Benefit (GIB)
A rider that  guarantees a minimum level of income for the annuitant, regardless of the investment performance of the underlying annuity. This feature is commonly offered in variable annuities and certain hybrid annuities.

Guaranteed Lifetime Withdrawal Benefit (GLWB)
A rider that guarantees the annuitant the ability to withdraw a minimum percentage of their account balance each year, even if the value of the annuity declines, for as long as they live.

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.

Guaranteed Withdrawal Benefit (GWB)
A feature or rider that guarantees the annuity holder the ability to withdraw a certain percentage of the initial investment or benefit base, regardless of the annuity's account value.

H

Hedge Fund Annuity
A type of variable annuity where the underlying assets are invested in hedge funds, which may offer higher potential returns, but also come with higher risks.

High-Water Mark
A feature in some variable annuities where the highest value reached by the account at a certain point in time is used as a benchmark for future performance. This feature may  impact withdrawal or income calculations.

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.

Immediate Fixed Annuity
A fixed annuity that begins paying periodic payments almost immediately after the initial lump-sum payment is made. The amount and frequency of the payments are predetermined and fixed for the life of the contract.

Income Base
A calculated amount used to determine the income that will be provided through an annuity, which may not reflect the actual account value. This amount is often higher than the account value to provide greater income benefits.

Income Guarantee
A provision in certain annuities that ensures a minimum income level for the annuitant, often regardless of market performance.

Income Period
The period during which annuity payments are made to the annuitant, which can either be for a fixed term, as long as the annuitant lives, or until the account balance is exhausted.

Income Rider  

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

Income Stream
A regular payment or series of payments made to an annuity holder, typically during the distribution phase. A source of retirement income designed to provide regular income during retirement or a specified time frame.

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.

Indexed Universal Life Annuity
A type of annuity that combines features of universal life insurance with an indexed  annuity, offering potential cash value growth based on a stock market index, along with life insurance coverage.

Inflation Protection 

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

Inflation Rider
An optional feature that adjusts the annuity’s payout over time to keep pace with inflation, ensuring that the annuity payments retain their purchasing power.

Inforce Annuity
An annuity contract that is active and has begun making periodic payments, as opposed to a policy in the accumulation phase.

Interest Credit
The amount of interest added to the annuity's account value, based on the performance of the underlying investments (in variable annuities) or the fixed interest rate (in fixed  annuities).

Internal Rate of Return (IRR)
The annualized rate of return on an annuity, factoring in all premiums paid, benefits received, and fees charged, to determine the annuity's performance over time.

Investment Risk
The risk associated with the performance of the underlying assets in variable annuities, meaning the annuity’s value could fluctuate based on the performance of stock, bond, or other investment markets.

Investment Sub-account
A portfolio within a variable annuity that holds specific investments, such as stocks, bonds, or mutual funds. The annuity owner can choose how to allocate their funds  across different sub-accounts.

J

Joint Annuity
An annuity that covers two individuals, often spouses, and continues to make payments to the surviving annuitant after one of the annuitants passes away. This is sometimes referred to as a "joint and survivor" annuity.

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

Laddering Annuities
A strategy where an individual purchases multiple annuities with different start dates to ensure a more flexible and diversified income stream, particularly for those planning for future retirement.

Lapse
When an annuity contract becomes inactive  because the annuity holder fails to pay required premiums or maintain the contract as specified, causing the contract to terminate.

Life Expectancy
The average period an individual is expected to live, used in calculating certain types of annuity payments (e.g., life income annuities) to determine the length of time the annuitant will receive payments. 

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.

Liquidity Risk
The risk associated with not being able to access funds from an annuity when needed, due to restrictions on withdrawals or surrender charges. Especially during the early years of the contract.

Living Benefit
A type of rider or feature that guarantees certain benefits to the annuity holder while they are still alive, such as a guaranteed minimum income or a maximum withdrawal  benefit.

Living Benefit Rider
A rider that provides annuity owners with certain benefits, such as guaranteed income or

protection against market downturns, typically for an additional fee.

Long-Term Care Rider
An optional rider that allows the annuity owner to access annuity benefits if they need long-term care, typically triggered by an inability to perform certain daily living activities.

Longevity Insurance
A type of annuity that starts providing income at an advanced age (e.g., age 85 or 90), offering protection against outliving one’s assets.

Longevity Risk
The risk that an individual may outlive their retirement savings, which annuities aim to mitigate by providing guaranteed income for life. 

M

MEC (Modified Endowment Contract)
A life insurance policy or annuity that has failed to meet IRS guidelines for premium  payments and is therefore subject to less favorable tax treatment, such as higher taxes on withdrawals.

Market Risk
The risk that the value of a variable annuity's investments may decrease due to market fluctuations, potentially reducing the amount of income or principal available to the annuitant.

Market Timing
A strategy in variable annuities where  the annuity holder attempts to buy and sell investments at the most favorable times based on predictions about market movements. This is usually not recommended, as it can involve significant risk.

Market Value Adjustment (MVA)

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

Market-Value Adjustment (MVA) Rider
A rider attached to an annuity that adjusts the annuity’s value based on changes in interest rates when funds are withdrawn or the annuity is surrendered. This is typically used in fixed-indexed annuities.

Maturity Date
The date when an annuity contract reaches its end of term or the point at which the contract will begin paying income, such as in the case of a fixed or indexed annuity. For fixed annuities, this may refer to the point when the contract begins paying out, either as lump sum or periodic payments.

Minimum Guaranteed Interest Rate 

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

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.

Mortality Credit
The additional amount of income that an annuitant may receive as a result of the fact that some annuitants may not live as long as expected, thus increasing the longevity pool for those who do live longer.

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, and often ranging from 3 to 10 years, providing predictable returns and security. 

N

Naked Annuity
An annuity that does not include any additional riders or optional benefits, offering only basic features.

Net Investment Income
The income generated by the underlying investments in a variable annuity, minus any associated fees or charges, used to calculate the annuity’s performance.

Net Premium
The portion of the premium paid by the annuity holder after deducting any fees, charges, or commissions. This is the amount actually invested in the annuity.

Nonforfeiture Option
An option in an annuity contract that allows the owner to choose a benefit, such as a reduced paid-up annuity, if they decide to stop making premium payments.

Non-Negotiable Annuity
An annuity that cannot be altered or modified once it has been issued, meaning the terms cannot be changed during the life of the contract.

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.

O

Out-of-Pocket Expense
The costs that an annuity holder may incur that are not covered by the annuity, such as fees associated with early withdrawals, administrative fees, or extra costs for optional riders.

P

Partial Surrender
A withdrawal from an annuity where only part of the account value is taken, as opposed to a full surrender. It may incur fees or impact the future value or income  stream.

Partial Withdrawal
A withdrawal from the annuity that is less than the total account value, typically subject to surrender charges or other penalties if taken during the early years of the contract.

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.

Policy Loan
A loan that an annuity holder can take against the accumulated value of their annuity, which may come with interest charges and must be repaid to avoid reducing the death benefit or annuity value.

Policyholder
The individual or entity that owns the annuity contract and is responsible for making premium payments and receiving benefits from the contract.

Premium 

The payment or payments made to purchase an annuity.

Premium Bonus
An additional amount added to the annuity by the insurer at the time of purchase, typically a percentage of the initial premium. The bonus may be subject to restrictions and vesting schedules.

Premium Deferral
The option for an annuity holder to delay making premium payments for a specified time period, while still keeping the contract active and receiving the benefits associated with  it.

Premium Taxes
Taxes imposed by certain states or jurisdictions on the premiums paid for an annuity, which may vary by location.

Premium Waiver
A feature in some annuities that waives the premium payments if the annuity holder becomes disabled or experiences certain hardship, such as a terminal illness.

Primary Beneficiary
The individual or entity designated to receive the annuity benefits in the event of the annuitant’s death. A primary beneficiary is usually the first in line to  inherit the annuity proceeds.

Principal-Only Annuity
An annuity where the annuitant receives periodic payments that are based solely on the  original amount invested, excluding any additional interest or earnings.

Principal Protection  

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

Proration
The process by which an annuity contract’s payment schedule or benefits are adjusted, often based on the time period the contract was in force during the year or the duration of certain benefits.

Publicly Traded Annuity
An annuity that is offered by a publicly traded insurance company, meaning its shares are available for purchase on a stock exchange, and its financial performance is subject to the market.

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 specific type of deferred annuity purchased within a qualified retirement plan, such as an IRA, that delays payouts until a later age (usually after age 80 or 85), reducing the account’s required minimum distribution (RMD).

Qualified Longevity Annuity Contract (QLAC) Rider
A rider that allows a portion of the qualified retirement plan (like an IRA) funds to be used to purchase a deferred annuity, which will begin paying out at a later age, such as 80 or 85, to provide guaranteed lifetime income.

Qualified vs. Non-Qualified Annuity
A Qualified Annuity is funded with pre-tax dollars, typically from an IRA or 401(k), and offers tax deferral. A Non-Qualified Annuity is funded with after-tax dollars, with the investment growing tax-deferred but subject to taxes upon withdrawal.

R

Rebalancing
The process of adjusting the allocation of investments in a variable annuity or an annuity with investment options, to maintain the desired risk profile and return expectations.

Reinvestment Option
A provision that allows the annuity holder to automatically reinvest any interest or dividends earned on the annuity back into the contract to enhance future growth.

Required Minimum Distribution (RMD): The minimum amount that must be withdrawn annually from certain retirement accounts, such as IRAs or 401(k)s, starting at age 73 (or age 72 for those born before July 1, 1949). RMDs are mandated by the IRS to ensure that retirement savings are eventually used for their intended purpose and not simply accumulated indefinitely. 

Rider 

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

Rider Benefits
Benefits added to an annuity contract  through the purchase of a rider, such as death benefits, living  benefits, or long-term care benefits, which provide additional financial protection or income guarantees. 

Rider Charges
Fees associated with adding optional riders to an annuity contract, which provide additional benefits or features.

Rider Fee
The additional cost associated with adding optional riders to an annuity contract, such as death benefits or income guarantees. These riders are typically added for a fee, which can affect the overall return on the annuity.

Rider Termination
The termination of an optional rider, which may occur when specific conditions are met, such as the annuitant’s age or a predefined period.

Risk Pooling
The method by which an annuity issuer combines the funds of many annuitants to reduce individual risk, with the understanding that some annuitants will live longer and others will pass away earlier than expected.

Roll-Up Rate  

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

Rolling Annuity
An annuity that allows the annuity holder to periodically "roll" over funds into new contracts, often to  take advantage of better interest rates or terms.

Rollover

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

S

Scheduled Withdrawals
A payment method in which annuity holders can arrange to receive regular, scheduled withdrawals from their annuity, often set up in advance for predictable income during retirement.

Second-to-Die Annuity
A type of joint annuity that  only pays benefits after both annuitants have passed away, typically used in estate planning to provide funds to beneficiaries.

Secondary Market for Annuities
A marketplace where annuity contracts can be sold to other investors, often at a discount, allowing the original annuitant to access cash before annuitization begins.

Separate Account
A pool of investments within a variable annuity, distinct from the insurance company’s general account, where funds are invested in securities such as stocks and bonds.

Single Premium Immediate Annuity (SPIA) 

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

Specialized Annuity
Annuities that are tailored for specific purposes, such as immediate annuities for retirement income, or fixed-indexed annuities for wealth accumulation with protection from market downturns.

Surrender Charge  

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

Surrender Period
The period during which an annuity holder may incur surrender charges for early withdrawals. This period varies by contract and can range from a few years to longer, depending on the terms of the annuity.

Surrender Value
The amount the annuity holder will receive if they decide to cancel or  surrender their annuity contract before the annuitization phase begins, often reduced by surrender charges in the early years.

Survivor Benefit

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

Systematic Transfer Option
A feature that allows an annuity holder to automatically transfer funds between investment options (e.g., from safer to riskier investments) at scheduled intervals, typically as part of an income or withdrawal strategy.

Systematic Withdrawal Plan (SWP)
A method for withdrawing funds from an annuity at regular intervals (e.g., monthly, quarterly), often for a specified period or until the account is exhausted.

T

Target Date Annuity
An annuity designed with a target date for when the annuitant plans to begin receiving income. The investment strategy typically adjusts to be more conservative as the target date approaches.

Tax-Deferred  

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

Tax-Free Exchange
A provision under the IRS 1035 Exchange rule that allows the tax-free transfer of an annuity’s value to another annuity or insurance product, provided specific conditions are  met, such as no cash payout or gain realization.

Tax-Qualified Annuity
An annuity purchased with pre-tax dollars, often through retirement accounts such as an IRA or 401(k), where tax-deferred growth is a key feature until withdrawals are made.

Taxable Event
Any event that triggers a tax liability, such as withdrawals from an annuity before age 59½ or the transfer of funds from one annuity to another without qualifying for tax deferral.

Tax Penalty
A penalty imposed on early withdrawals from an annuity before age 59½, in addition to ordinary income taxes, unless an exception applies (such as disability or death).

Tenure Certain Annuity
An annuity that guarantees payments for a specified period (e.g., 10 or 20 years) but does not provide lifetime income; if the annuitant dies before the period ends, the beneficiary continues receiving payments.

Term Certain Annuity
An annuity that guarantees periodic payments for a set term, such as 10 or 20 years, regardless of whether the annuitant is alive or deceased during that time.

Terminal Illness Benefit
A rider that allows the  annuity holder to access a portion of their annuity value, often without penalties or charges, if they are diagnosed with a terminal illness, generally defined as having a limited life expectancy.

Terminal Illness Benefit Rider
A rider that allows the annuitant to access a portion of the annuity’s death benefit if they are diagnosed with a terminal illness, often without penalties.

Terminal Illness Rider
A rider that allows the annuity holder to access a portion of their annuity’s value in the event they are diagnosed with a terminal illness, typically without incurring surrender charges.

Terminal Illness Waiver
A provision that allows the annuity owner to withdraw funds without penalty if diagnosed with a terminal illness, often available with certain annuities.

Time Horizon
The length of time an investor plans to hold an annuity before beginning withdrawals. The time horizon can impact the type of annuity purchased, with longer horizons favoring products with more growth potential, such as variable annuities.

Tontine Annuity
A rare form of annuity where a group of individuals contributes to a common pool, and payouts are made until only one person remains, who receives the entire benefit. Tontines are no longer widely used but are still referenced in some historical annuity models.

Transaction Fees
Fees charged for certain transactions within an annuity contract, such as transfers between investment options, partial withdrawals, or surrenders.

Transfer Fee
A fee charged when transferring funds between sub-accounts within a variable annuity or switching between different investment options offered under the contract.

Two-Tier Annuity 

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

U

Underwriting
The process by which the insurance company evaluates the annuity applicant’s health, age, and other factors to determine the premium, payment amounts, and other conditions of the annuity contract. 

V

Valuation Date
The date on which the value of the annuity’s account or investment portfolio is calculated, typically used for assessing account growth, investment performance, and withdrawal values.

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.

Variable Investment Option
A type of investment within a variable annuity where the annuity holder’s funds are allocated among different investment choices, such as stocks, bonds, or mutual funds, and the performance of these investments determines the annuity’s  returns.

Vesting

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

Viatical Settlement
The sale of a life insurance policy by the policyholder (often elderly or terminally ill) to a third party for a lump sum, which can sometimes be used as an alternative to purchasing certain types of annuities.

W

Withdrawal Allowance
The amount of funds an annuity holder is allowed to withdraw from their contract each year, often expressed as a percentage of the annuity’s value or the income benefit base.

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.

Withdrawal Phase
The stage in an annuity contract  when the annuitant begins receiving payments or making withdrawals, transitioning from the accumulation phase.

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.

 Z

Zero-Coupon Annuity
An annuity that does not provide periodic income payments but accumulates value over time, with a lump-sum payment made at the end of the term or at the annuitant’s death. 

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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