In the United States, a "1035 Exchange" refers to a tax-free replacement of an insurance policy for another insurance contract that covers the same person.
An accumulation period is the time between the first premium payment and when the payout begins. During this time, the premiums paid into the contract "accumulate" with interest.
The annuitant's lifetime is used to measure the life of an annuity. The owner of the annuity controls the payments and is often the same person as the annuitant.
Annuity premium is the payment one makes into an annuity contract.
The age the insured has reached since original policy issue is the attained age.
This is the anticipated rate that's credited in the second year of an annuity contract. The base rate is not a guaranteed rate, and it may differ from the actual interest that is credited at the time the contract reaches its second year.
A basis point is a unit of measurement used when discussing interest rates; one hundred basis points equals 1%.
The person, persons or organization designated to receive the death benefit of an annuity. A primary beneficiary is your first choice to receive proceeds from the policy. Contingent beneficiaries receive proceeds in case the primary beneficiary(ies) dies.
The sum of money in an annuity that is, with some limitations, available to the contract holder in the form of withdrawals, loans, collateral or upon surrendering the policy. Also known as the Cash Surrender Value or CSV.
For an indexed annuity contract, the cap is an upper limit on the amount of an index's gain in value that will be credited to the annuity value.
A Certificate of Deposit that earns interest for a specified period of time. Issued by a financial depository institution such as a bank.
A claim is the right of an individual or corporation to recover a loss under the terms of an insurance policy.
A clause is defined as the words in a policy that describe some certain coverage, limitation or revision.
Compounding interest is the type of interest that is earned on both the original principal amount and on the interest accumulated from earlier periods.
A deferred annuity is an annuity contract where periodic payments do not begin until some future date elected by the annuity owner.
The sum of money paid to the beneficiary of an annuity.
A rollover is a direct transfer of retirement funds from one qualified plan to another plan. Because funds do not pass through the hands of the owner they do not incur any tax liability for the owner. Also known as a direct transfer.
The percentage of each annuity payment that is excluded from taxes. IRS guidelines for life expectancies are used by the insurance company to calculate this ratio.
There are many circumstances that require that a policy be changed; e.g., change of name, change in coverage. An endorsement is a form that is attached to the policy to record the change.
Under the terms of a fixed annuity, the insurance company agrees to credit a guaranteed minimum interest rate to the annuity. There is no market risk to your premium.
Fixed Indexed or Index-Linked Annuities
These annuities offer the same type of minimum interest rate guaranteed by a traditional fixed annuity, but have the potential to credit additional interest based in part on the performance of a market index.
A flexible premium annuity allows the contract owner to make multiple premium payments into an annuity.
An annuity that begins to provide you with an income right after paying a single premium. Also known as a SPIA.
Indexed or Index-Linked
An interest crediting strategy where the credited interest rate is calculated based partly on the upward movement of a major stock market index.
The interest-out-first rule works like this: If a withdrawal is taken from an annuity contract, the withdrawal must be treated as interest (and taxed accordingly) if the cash value of the contract exceeds the amount paid into the contract at that time.
A policy that covers two or more lives and makes annuity payments to two or more annuitants is called a joint-life annuity. Sometimes payments cease at the first death and sometimes at the last death.
"Life only" refers to an annuity settlement option or immediate annuity in which regularly scheduled payments are made from the time distribution is initiated. These payments then continue through the end of the annuitant's life. No payments will be made after the annuitant is deceased.
Life with Period Certain
"Life with period certain" refers to an annuity settlement option or immediate annuity in which lifetime annuity payments are made. However, there is a guaranteed minimum number of payments that will be made to the beneficiary if the annuitant dies within a specified period of time.
Lump Sum Payment
The entire payment of an annuity policy to the annuitant at one time, rather than in installment payments, is a lump sum payment.
Funds are designated as non-qualified if they have already been taxed (post-tax dollars), except Roth IRA funds.
Old Money Rate/Renewal Rate
The interest rate that applies to the portion of the insured's account balance that is no longer in the new money period as defined in the insurance contract is the old money rate or renewal rate.
Pre-Tefra Cost Basis
Cost basis established before August 14, 1982. This type of cost basis will be withdrawn from an annuity before any gain (taxable amount) is withdrawn
Post-Tefra Cost Basis
Cost basis established on or after August 14, 1982. This type of cost basis is not withdrawn from an annuity until all gain has been withdrawn
For an indexed annuity the participation rate is the amount of an index's gain that will be credited to the policy value.
The amount paid to the insurance company to purchase the annuity. Paid as a lump sum or as installments.
An insurance company may credit an additional amount to your initial premium in the form of a premium bonus. This bonus increases your Accumulation Value immediately. A premium bonus may have a vesting schedule or recapture schedule, which means that a surrender or withdrawal in excess of a free withdrawal amount may result in forfeiting all or portion of the premium bonus.
The total amount of premium paid to an annuity.
Annuity funds are designated as qualified if they have not yet been taxed (pre-tax dollars), except Roth IRA funds.
Registered Index-Linked Annuity
(Also referred to as structured annuities or index-linked variable annuities)
Gives you the potential to grow your assets by crediting interest based in part on the performance of a market index. Registered index-linked annuities also offer a level of protection from market risk.
Required Minimum Distribution (RMD)
The IRS requires individuals owning IRAs to take a required minimum distribution (RMD) each year once you reach a certain age, which varies by birthdate. The annual deadline for taking an RMD is December 31. You may delay your first RMD until April 1 of the year after you attain the required beginning age. If you delay your first RMD, you'll have to take your first and second RMD in the same tax year. If you fail to take your RMD, you may be subject to an excise tax. Please consult with your tax professional for guidelines specific to your situation. Visit IRS.gov for details.
Rider is another name for an addition to a base policy contract that adds further benefits or agreements to an insurance policy.
The surrender value is the amount in cash a contract owner is entitled to collect upon terminating the annuity contract prior to maturity or death.
A settlement option is a provision in an annuity policy that, when exercised, provides for optional methods of settlement in place of a lump-sum cash payment. These are usually in the form on a stream of periodic payments, made for a fixed amount of years or made during the lifetime of the annuitant.
Single Premium Annuity
An annuity purchased with one lump sum payment is referred to as a single premium annuity. The payout can be either immediate or deferred.
Single Premium Immediate Annuity (SPIA)
An annuity contract that is purchased with a single premium payment and that will begin making payments within one year after the contract's issue date.
A surrender charge can mean an amount charged to an annuity contract owner when they prematurely withdraw a portion or the entire contract's accumulated value.
Interest credited to an annuity that is not taxed as earned income until it is withdrawn.
Tax Sheltered Annuity (TSA)
A tax sheltered annuity (TSA) is an annuity issued by an insurance company under Section 403 (b) of the Internal Revenue Code designed to help the annuitant accumulate funds for retirement. Eligibility is limited to specific occupations such as teachers and people who work for non-profit organizations.
A variable annuity is a contract where the cash value of the policy fluctuates in response to the performance of the policy's underlying investments. There is generally a minimum guaranteed death benefit under variable annuities.