Account Value. The Account Value is the sum of all Premiums, increased by accumulated interest, less the amount of any gross withdrawals. The Account Value is not necessarily the same as the Surrender Value.
Accumulation Period. The time period when an Annuity earns and accumulates interest. This time period runs from the date of purchase to the time when the annuity matures, is surrendered, or enters the Payout Phase.
Accumulation Product. A financial product designed to build wealth over a long period of time. Premium “accumulates” interest over time in order to be used at a later date, such as for retirement.
Annuitant. The person or persons on whose life or lives the Annuity is based, primarily for the purpose of Annuitization. The Contract Owner decides who the Annuitant will be. The Contract Owner and Annuitant generally are the same person but are not required to be.
Annuitizization. The transaction that changes a Deferred Annuity from the Accumulation Period to the Payout Period.
Annuity. An insurance contract issued by an insurance company to provide payments to the holder at specified intervals, usually after retirement. An Annuity has two Periods: Accumulation and Payout.
Beneficiary. The named recipient of an Annuity’s value (either Account Value or Surrender Value, depending on the terms of the Annuity) on the death of the Contract Owner or Annuitant.
Caps. In a Fixed Index Annuity, the maximum percentage of Index Credits the Annuity can earn.
Cash Value. The Surrender Value, or amount of money, to be received by the Contract Owner if an Annuity is surrendered. It is typically the Account Value minus Surrender Charges, Withdrawals, and Market Value Adjustment (if applicable).
Contract Owner. The person or entity who purchases the Annuity and has rights to the contract. This person names the Annuitant and the Beneficiary, and may exercise the provisions of the Annuity contract.
Cost Basis. Actual Premium (or Principal) paid into a Non-Qualified Annuity is referred to as the “Cost Basis” of the Annuity contract. Since this is money that has already been subject to income tax, it will not be taxed again upon withdrawal.
Death Benefit. The payment made to the named Beneficiary upon the death of the Owner or Annuitant, as described in the contract.
Deferred Annuity. A type of Annuity that defers payments of income or a lump sum until maturity or until the Contract Owner elects to receive them.
Distribution Period. The contractually established period during which an Annuity distributes Principal and accumulated interest to the Contract Owner. Also called the Payout Phase or Income Phase.
Endorsement. A form attached to the Annuity Contract that records a change to the policy, such as a change of name, change in coverage, etc.
Equity Index Annuity. An Annuity in which the earnings are tied to the performance of a market index or indexes (e.g., the Standard & Poor’s 500®). An Equity Index Annuity is a type of Index Annuity or Fixed Index Annuity.
Fixed Annuity. A type of Annuity offered by an insurance company that includes a minimum guaranteed interest rate.
Fixed Index Annuity (FIA). An Annuity in which the earnings are tied to the performance of a market index or indexes (e.g., the Standard & Poor’s® 500). A Fixed Index Annuity is primarily used during the Accumulation Period of retirement savings. The term “FIA” is sometimes used interchangeably with “Equity Index Annuity,” but that’s not always accurate since an FIA may be tied to indexes other than stock market (equity) indexes. Also known as an Index Annuity.
Flexible Premium Annuity. An Annuity that accepts multiple payments of Premium.
Free-Look Period. The period of time after an Annuity contract is delivered when the Contract Owner may cancel the policy without penalty. The specifics of the Free-Look Period are set by state regulation.
Free Withdrawal. A withdrawal that is permitted from an Annuity without a Surrender Charge or Market Value Adjustment, if applicable. Also known as a Penalty-Free Withdrawal.
Guarantee Period. The period of time during which interest rates are guaranteed by the insurance company. For a Fixed Index Annuity, the Guarantee Period may also apply to the Participation Rate, Caps, or Spreads.
Highest Anniversary Mark. In a Fixed Index Annuity, a crediting method that awards Index Credits based on the difference between the beginning index level and the highest anniversary level reached during the Index Period.
Immediate Annuity. An Annuity that begins regularly scheduled payouts within one year of purchase. If the contract is established to make monthly payments, the first payment would begin 30 days after the Annuity contract is issued.
Income Period. The contractually established period during which an Annuity distributes Principal and accumulated interest to the Contract Owner. Also called the Payout Period or Distribution Period.
Index Credits. Index Credits are earnings calculated based on the performance of market indexes, such as the Standard & Poor’s® 500. Index Credits are comparable to interest, but are called Index Credits in order to clarify that they are calculated based on the performance of a market index, rather than a fixed rate of return.
Index Period. In a Fixed Index Annuity, the period of time during which the change in the applicable index or indexes is measured, for the purpose of calculating Index Credits.
Market Value Adjustment (MVA). An adjustment (positive or negative) that is applied when an Annuity is liquidated early. It is designed to share some of the investment risk associated with the Annuity between the contract holder and the company.
The concept of the MVA is simple. If you take an early withdrawal or Surrender the annuity (other than a Partial Surrender of no more than the “penalty free” amount, if applicable); and the Annuity has an MVA, you may have a higher or lower Cash Value at the time money is withdrawn. Generally, if interest rates in the market are higher than when you purchased your Annuity, the adjustment may cause your value to be lower. Similarly, if interest rates in the market are lower than when you purchased your Annuity, the Cash Value may be higher than it would be without the MVA.
Maturity. The date when an Annuity contract reaches the stage when the obligation is due and payable.
Multi-Year Guarantee Annuity (MYGA). An Accumulation Period Annuity that guarantees an interest rate for the full guarantee period.
Non-Qualified Annuity. An Annuity purchased with after-tax dollars that is not part of a tax-qualified retirement plan. Money paid into a Non-Qualified Annuity is not tax deductible.
Non-Surrenderable Annuity. An Annuity, the terms of which prohibit Surrender before the Guarantee Period ends.
Partial Surrender. Withdrawing part of the value of an Annuity.
Participation Rate. In a Fixed Index Annuity (FIA), the percentage of the increase in the applicable index, during the Index Period, that will be credited as interest to the Annuity. For example, an FIA with a participation rate of 80%, during an Index Period when the index rose 10%, would credit 8% interest (80% of 10%).
Payout Period. The contractually established period during which an Annuity distributes Principal and accumulated interest to the Contract Owner or their named payee. Also called Distribution Period or Income Period.
Penalty-Free Withdrawal. A withdrawal that is permitted from an Annuity without the penalty of a Surrender Charge or Market Value Adjustment (if applicable).
Point-to-Point. In a Fixed Index Annuity, a crediting method that awards Index Credits based on the difference between the beginning index level and the index level at the end of the Index Period.
Premium. Money paid into an Annuity by the Contract Owner.
Principal. The sum total of all actual Premiums put into an Annuity. Equal to Cost Basis in a Non-Qualified Annuity.
Qualified Annuity. An Annuity purchased with pre-tax dollars as part of a tax-qualified retirement plan, such as a traditional Individual Retirement Annuity/Account (IRA).
Renewal Interest Rate. The interest rate that will be credited after the initial Guarantee Period has expired.
Rider. A contract provision that changes or adds to an Annuity’s features or rules.
Single Premium Annuity. An Annuity that accepts either a single payment or a number of payments over a very short period of time.
Split Annuity. A Split Annuity is a combination of two separate Annuity contracts, one Immediate and one Deferred. The Immediate Annuity provides tax-advantaged income, while the Deferred Annuity builds value.
Spread. In a Fixed Index Annuity, a specific percentage subtracted from the calculated return during the Index Period.
Surrender. Withdrawing the entire value of an Annuity Contract in a single payment.
Surrender Charge. A type of early withdrawal penalty that reduces the Account Value when funds are removed from an Annuity during the Surrender Charge Period.
Surrender Charge Period. The period during which Surrender Charges will be subtracted from an Annuity’s Account Value if funds are withdrawn from the Annuity.
Surrender Value. See “Cash Value”.
Tax-Deferral. The ability to delay paying income tax on funds that are earned on Principal deposited into the Annuity, until those funds are withdrawn from the Annuity.
Variable Annuity. A type of Annuity in which the Account Value will fluctuate with the performance of the underlying investments. Investment decisions are made by the Contract Owner and loss of Principal is a risk