Reference

Annuity Glossary

Clear definitions of essential annuity terminology, organized alphabetically. This glossary is for educational purposes only and does not constitute financial or legal advice.

A

Accelerated Income Period: A phase during which lifetime income withdrawals are calculated at a higher payout rate. Once this period ends, the withdrawal amount drops to a lower base rate for the remainder of the income phase.
Account Interest Rate: The interest rate applied to the benefit base during the accumulation phase before income withdrawals begin.
Accumulation Value: The total value of your annuity contract, including premiums paid, interest credited, and any bonuses, minus any withdrawals or fees taken.
Accumulation Period: The time between your first premium payment and when you begin receiving income payments. During this phase, your money grows on a tax-deferred basis.
Annual Automatic Increase: A scheduled increase in your income payment amount that occurs once per year based on the terms of your rider.
Annual Fee: A charge used in calculating index earnings and balance allocation amounts. In some contracts, this fee may be zero.
Annual Income Rider Charge: A fee deducted from the accumulation value on each contract anniversary for the income rider. It is typically calculated by multiplying the income base by the annual rider charge rate.
Annual Rider Charge Rate: The percentage rate used to calculate the annual income rider charge. One-twelfth of this amount is commonly deducted monthly from the accumulation value.
Annual Rider Spread Rate: A rate used to determine the spread in interest earnings calculations under a balanced allocation strategy.
Annuitant: The person whose lifetime is used to measure the duration of an annuity's payments. The annuity owner and the annuitant are often the same person.
Annuity Premium: The payment or series of payments made into an annuity contract by the owner.
Attained Age: The age an insured person has reached since the original policy was issued. Many annuity features — such as payout percentages — are based on attained age.

B

Balanced Allocation Factor: A rate calculated using the index allocation, declared rate allocation, declared rate, and total annual spread rate in place at the beginning of a term. It is applied to the accumulation value to determine the balance allocation value.
Balanced Allocation Income Percentage: The portion of base contract indexed earnings added to the income account value at the end of each term.
Balanced Allocation Value: A value that changes daily based on movements in the underlying indices. It is not locked in until the end of the term.
Base Rate: The anticipated interest rate credited in the second contract year. It is not guaranteed and may differ from the actual rate applied when that year begins.
Basis Points: A unit for measuring interest rates. One hundred basis points equal one percentage point.
Beneficiary: The person, trust, or organization designated to receive the death benefit of an annuity. A primary beneficiary is first in line; contingent beneficiaries receive the benefit if the primary beneficiary does not survive.
Benefit Base: A value used solely to calculate rider benefits such as guaranteed lifetime income or enhanced death benefits. It is not a cash value that can be withdrawn.

C

Cap: The maximum rate of interest that can be credited to an indexed annuity in a given term, regardless of how much the linked index rises. For example, if the index gains 12% and the cap is 8%, the credited rate is 8%.
Cap Rate: See Cap.
Care Benefit End Date: The date on which confinement or activities-of-daily-living rider payments end, or the date by which recertification is required for benefits to continue.
Care Benefit Start Date: The date income payments were increased under the confinement or activities-of-daily-living provision of an income rider. The insurer may require periodic proof that qualifying conditions persist.
Cash Surrender Value: The amount payable to the contract owner upon voluntarily terminating the annuity before maturity, after subtracting any surrender charges and market value adjustments.
Cash Value: The total amount available in an annuity contract through withdrawals, loans, or surrender, subject to the contract's terms and any applicable charges.
Certificate of Deposit (CD): A time deposit offered by banks and credit unions that pays a fixed interest rate for a specified term. CDs are FDIC-insured up to applicable limits, unlike annuities.
Claim: A formal request by a beneficiary or contract owner to receive benefits under the terms of an insurance policy or annuity contract.
Clause: A specific provision or section within an insurance policy that defines coverage, limitations, or conditions.
Compounding Interest: Interest calculated on both the original principal and the interest that has already been credited. Over time, compounding accelerates the growth of the account value.
Consumer Price Index (CPI-U): A measure of inflation published by the U.S. Bureau of Labor Statistics that tracks the average change in prices paid by urban consumers. Some income riders use CPI-U movements to adjust withdrawal amounts.
Contract Anniversary: The annual date marking the issuance of the annuity contract. Fees, interest credits, and rider charges are often calculated on each anniversary.
Contract Year: A twelve-month period beginning on the contract issue date or its anniversary. Withdrawal limits and fee assessments are typically tracked per contract year.

D

Daily Value: The sum of all strategy daily values in an annuity contract on any given business day.
Date of Final Guaranteed Payment: The last date on which a payment is contractually guaranteed under a structured settlement. For life-contingent payouts, this may be the end of a period-certain term.
Death Benefit: The amount paid to the designated beneficiary upon the death of the annuitant or contract owner. Death benefit formulas vary by contract and may include a guaranteed minimum.
Death Benefit Percentage: A multiplier used to calculate the death benefit, based on interest credited to the accumulation value in addition to any guaranteed rollup rate.
Death Benefit Rider Interest Rate: The simple interest rate at which the benefit base grows under a death benefit rider, effective until the guaranteed simple interest stop date.
Death Benefit Rider Value: The benefit base amount payable to beneficiaries in equal periodic payments upon the owner's or annuitant's death, provided the death benefit waiting period has been satisfied.
Declared Rate: A fixed interest rate set by the insurer for a specified period, used in calculating index earnings and balance allocation factors.
Declared Rate Allocation
Deferred Annuity: An annuity contract in which income payments begin at a future date chosen by the owner, allowing the accumulated value to grow tax-deferred in the interim.
Direct Rollover: A transfer of retirement funds directly from one qualified plan or IRA to another without the funds passing through the account owner's hands. Direct rollovers avoid mandatory withholding and immediate tax liability.

E

Endorsement: A document attached to an insurance policy that records a change to the original terms, such as a name change, coverage adjustment, or beneficiary update.
Enhanced Death Benefit: A death benefit equal to the net premium (total premiums less withdrawals) accumulated at the death benefit rider interest rate.
Enhanced Income Benefit Start Date: The date payments were increased under the enhanced income benefit provision of a rider. The insurer may require periodic recertification that qualifying conditions persist.
Equity Adjustment: An increase or decrease to withdrawal amounts or performance lock values, based on changes in the cost of options purchased for an index-linked segment.
Exclusion Ratio: The percentage of each annuity payment excluded from taxable income. The insurer calculates this ratio using IRS life expectancy guidelines.

F

Fixed Annuity: An annuity contract in which the insurance company guarantees a minimum interest rate. The premium is not subject to market risk, and growth is predictable.
Fixed Indexed Annuity (FIA): A type of fixed annuity that guarantees a minimum interest rate while offering the potential for additional interest credits based on the performance of a market index, such as the S&P 500. Principal is protected from market declines.
Flexible Premium: An annuity that allows the contract owner to make multiple premium payments over time, rather than a single lump sum.
Free Withdrawal Amount: The amount that may be withdrawn from an annuity in a given contract year without incurring a surrender charge. Typically set as a percentage of the accumulation value.

G

Guaranteed Period: A specified number of years during which income payments are guaranteed to continue, regardless of whether the annuitant is still living.

I

Immediate Annuity: An annuity purchased with a single premium that begins making income payments within one year of issue. Commonly referred to as a Single Premium Immediate Annuity (SPIA).
Income Base Bonus Percentage: An additional percentage applied to the initial income base when an income rider is issued.
Income Base Value: The value used to calculate lifetime income withdrawals. It is not payable as a cash surrender value and is distinct from the accumulation value.
Income Phase Start Date: The date on which the first lifetime income withdrawal is taken under an income rider. Once the income phase begins, the contract transitions from accumulation to distribution.
Income Rider Death Benefit: A death benefit option under an income rider that allows the beneficiary to receive payments over a set period instead of the base contract death benefit.
Index Cap Rate: The maximum percentage of index gain that can be credited as interest in a given term. If the index rises more than the cap rate, the credited amount is limited to the cap.
Index Lock Date: The business day on which the insurer receives a valid request from the owner to lock in index gains mid-term, in accordance with contract requirements.
Index-Linked: A crediting method in which the interest rate is calculated based in part on the upward movement of a stock market index, while principal is protected from index losses.
Initial Premium: The first premium payment received by the insurance company at the time the annuity contract is issued.
Interest Adjustment: An adjustment to withdrawal values based on changes in interest rates, calculated only when surrender charges apply.
Interest-Out-First Rule: A tax rule requiring that any withdrawal from a non-qualified annuity be treated as taxable income first, up to the amount of accumulated earnings, before any tax-free return of principal.
IRS: The Internal Revenue Service, the U.S. government agency responsible for tax collection and enforcement of tax laws governing retirement accounts and annuities.
Issue Age: The age of the annuitant or owner on the date the annuity contract is issued. Many contract features — including payout rates and rider charges — depend on issue age.

J

Joint-Life Annuity: An annuity covering two or more individuals, typically spouses. Payments continue as long as at least one annuitant is living. The payment amount may decrease upon the first death depending on the elected option.

L

Life Only: An income option in which payments are made for the annuitant's lifetime and cease entirely upon death. No benefits are paid to beneficiaries.
Life with Period Certain: An income option that guarantees lifetime payments to the annuitant, with a minimum number of payments directed to a beneficiary if the annuitant dies within a specified period.
Lifetime Income Rider: An optional contract feature that guarantees regular income payments for life, regardless of how the underlying account performs or how long the annuitant lives.
Liquidity: The ability to access funds in an annuity contract through withdrawals or surrender. Annuity liquidity is typically limited during the surrender charge period.
Lock-in Accumulation Value: The accumulation value as of the lock-in effective date, used to calculate future interest credits for the remainder of the term.
Lock-in Effective Date
Lock-in Index Earning Factor: The rate calculated and applied to the accumulation value on the lock-in date to credit earnings from the beginning of the term.
Lump Sum Payment: A single payment of the full contract value to the annuitant or beneficiary, rather than a series of periodic payments.

M

Market Value Adjustment (MVA): An adjustment applied to withdrawals exceeding the free amount during the surrender charge period. When market interest rates have risen since purchase, the MVA typically reduces the cash surrender value. When rates have fallen, it may increase it.
Maximum Annual Lifetime Withdrawal Amount (Level): The maximum amount that can be withdrawn annually under a lifetime income rider, calculated as a fixed percentage of the income base based on the owner's issue age and attained age.
Maximum Annual Lifetime Withdrawal Amount (Earnings-Indexed): A maximum withdrawal amount that may increase over time based on interest credits applied to the annuity's accumulated value, if elected during the income phase.
Maximum Annual Lifetime Withdrawal Amount (Inflation-Indexed): A withdrawal amount that may increase annually based on movements in the Consumer Price Index for All Urban Consumers (CPI-U), if elected during the income phase.
Maximum Lifetime Income Withdrawal (Accelerated): A higher income withdrawal amount available during an accelerated income period, after which it drops to a lower base amount.
Mortality Expense: A charge that covers the insurance risk assumed by the insurer, including the guarantee of lifetime income and death benefits.

N

New Money Rate: The interest rate applied to premiums received during a specified window, often higher than renewal rates to incentivize new contributions.
Non-Qualified: Funds used to purchase an annuity that have already been taxed (post-tax dollars). Withdrawals from non-qualified annuities are taxed only on the earnings portion, not the principal.
Nonforfeiture Value: The minimum value guaranteed to the contract owner upon surrender, as required by state law, even if surrender charges would otherwise reduce the value further.

O

Old Money Rate: The interest rate applied to the portion of the account balance no longer in the new money period, as defined by the contract.
Option Cost: The cost incurred by the insurer to purchase financial options that support index-linked crediting strategies. Option costs can affect participation rates and cap levels.

P

Participation Rate: The percentage of an index's gain that is credited as interest to an indexed annuity. A participation rate of 80% means the account receives 80% of the index's gain.
Payment Frequency: How often income payments are made, such as monthly, quarterly, semi-annually, or annually.
Payment Option: The method by which annuity payments are distributed, including single life, joint life, period certain, life with period certain, and lump sum, among others.
Performance Lock Value: The segment value plus any applicable equity adjustment, available exclusively on index-linked segment options that offer a performance lock feature.
Period Certain: An income option that guarantees payments for a fixed number of years, regardless of whether the annuitant is still living.
Premium: The amount paid to the insurance company to purchase an annuity or add to an existing contract.
Premium Bonus: An additional amount credited to the accumulation value by the insurer, often as a percentage of the initial premium. Premium bonuses may be subject to vesting or recapture schedules.
Principal: The total amount of premium payments made into an annuity, distinct from any interest or earnings credited.
Private Placement Memorandum: A legal document disclosing details of a non-registered investment product offered under an exemption from SEC registration requirements.
Prospectus: A legal document filed with the SEC that describes the terms, risks, fees, and objectives of a registered investment product, such as a variable annuity.

Q

Qualified: Funds used to purchase an annuity that have not yet been taxed (pre-tax dollars), such as those rolled over from a 401(k) or traditional IRA. Withdrawals are fully taxable as ordinary income.

R

Recapture Schedule: The timetable governing how much of a premium bonus must be repaid to the insurer if the contract is surrendered or excessive withdrawals are taken within a specified period.
Registered Index-Linked Annuity (RILA): An annuity that offers index-linked growth potential with a level of downside protection, typically through a buffer or floor. RILAs are registered with the SEC, unlike fixed indexed annuities.
Required Minimum Distribution (RMD): The minimum amount the IRS requires owners of qualified retirement accounts to withdraw annually once they reach a specified age. Annuity values within qualified accounts may be subject to RMD rules.
Return of Premium Guarantee Date
Rider: An optional add-on to an annuity contract that provides additional benefits or features, such as guaranteed lifetime income, enhanced death benefits, or long-term care coverage, typically for an additional fee.
Rider Death Benefit Availability Date
Rider Death Benefit Payout Period: The number of years over which the beneficiary may elect to receive the rider death benefit.
Rider Interest Rate: The rollup interest rate used to calculate the enhanced death benefit value within an income rider.
Rider Simple Interest Rate: A simple interest rate applied to the benefit base during the accumulation phase.
Risk Tolerance: An individual's ability and willingness to endure fluctuations in the value of their investments. Annuity products are designed for those with lower risk tolerance who prioritize principal protection and guaranteed income.
Rollover: The transfer of retirement funds from one qualified plan or IRA to another without triggering immediate taxes. Rollovers may be direct or indirect.
ROP Waiting Period

S

SEC: The Securities and Exchange Commission, the U.S. federal agency responsible for regulating securities markets and protecting investors. Variable annuities and RILAs are SEC-registered products.
Settlement Options: Provisions in an annuity contract that determine how the value is paid out, including lump sum, periodic payments for a fixed period, or lifetime income.
Single Premium Annuity: An annuity purchased with one lump sum payment rather than multiple payments over time.
Single Premium Immediate Annuity (SPIA): An annuity purchased with a single premium that begins making guaranteed income payments within one year of issue.
Spread Rate: A percentage subtracted from the index cap rate or the index percent change to determine the credited interest rate. For example, with a cap of 10%, index change of 8%, and spread of 3%, the credited rate is 5%.
Strategy Daily Value: The daily value of an indexed strategy, reflecting index movement from the start of the term to the current date. Available only for strategies with an index lock feature.
Structured Settlement: A financial arrangement in which a claimant receives periodic payments over time rather than a lump sum, often funded by an annuity. Commonly used in personal injury and workers' compensation cases.
Suitability: The process of evaluating whether an annuity product is appropriate for a consumer based on their financial situation, goals, age, and risk tolerance, in compliance with state insurance regulations.
Surrender Charge: A fee imposed when the contract owner withdraws funds exceeding the free withdrawal amount or surrenders the contract during the surrender charge period. Surrender charges typically decrease over time and expire after a set number of years.
Surrender Charge Period: A specified number of years — typically 5 to 10 — during which surrender charges apply to withdrawals exceeding the free amount.
Surrender Value: The net amount payable to the owner upon terminating the annuity contract, equal to the accumulation value minus any surrender charges, market value adjustments, and fees.

T

Tax Deferred: A feature of non-qualified annuities in which interest and earnings are not taxed until they are withdrawn, allowing the account value to compound without the drag of annual income taxes.
Tax Sheltered Annuity (TSA): An annuity issued under Section 403(b) of the Internal Revenue Code, available to employees of public schools, certain tax-exempt organizations, and religious institutions.
Term Period: The interval between interest crediting calculations, typically one year for fixed indexed annuities.
Total Gross Contract Year Withdrawals: The total dollar amount withdrawn from the annuity within a single contract year, before subtracting charges such as surrender fees or taxes.
Total Gross Withdrawals Since Inception: The cumulative amount withdrawn from the annuity since the contract was issued, before applying charges or deductions.
Trigger Rate: A fixed interest rate credited to an indexed strategy when the linked index percent change is zero or positive, provided the rate exceeds the index change. For dual trigger strategies, the trigger rate may also apply if the index decline falls within the buffer.

V

Variable Annuity: An annuity in which the contract owner allocates premiums among sub-accounts that invest in stocks, bonds, or money market instruments. The cash value fluctuates with market performance, and a minimum death benefit is typically guaranteed.
Vesting Schedule: A timetable determining when bonus amounts or additional credits become the property of the contract owner. Surrendering before full vesting may result in forfeiture of unvested amounts.

W

Withdrawal Charge: A fee deducted from the annuity value upon surrender or when withdrawals exceed the free withdrawal amount in a given contract year. Withdrawal charges are expressed as a percentage and decline over the surrender charge period.
Withdrawal Charge Period

Educational use only

This glossary is provided for informational and educational purposes only. It does not constitute financial, tax, legal, investment, or fiduciary advice. Annuity contract terms, features, and availability vary by product, state, and the issuing insurance company. Always refer to your specific annuity contract or disclosure document for complete details and consult a licensed financial professional before making any decisions.