Accumulation phase: This is the period of time, usually starting the month the annuity is funded, when the premium paid into the annuity, grows tax- deferred from credited interest.
Annuitant: The annuitant is the person who is designated to receive a series of benefit payments from an annuity once it is annuitized.
Annuitize: The method in which the annuitant receives a series of benefit payments from the annuity. Generally, the payments are paid in equal monthly installments for a lifetime or a specific period of years, known as period certain.
Annuity: A contract with a life insurance company, which provides a guaranteed
income stream for life or an alternative designated time period (5 or 10 years) in exchange for premiums paid.
Beneficiary: The beneficiary is the person designated to receive a benefit payment from an annuity in the event the annuitant dies.
Current interest rate: The insurance company determines the interest rate to be credited to the annuity each year based on certain criteria with the economy. While a current interest rate is usually guaranteed for one year, certain annuities may have a current rate, which is applied for multi-years.
Death benefit: The payout to the beneficiary from the annuity, which is triggered by the death of the contract owner or annuitant. Certain contract provisions may allow the beneficiary to elect different options for receiving the death benefit.
Equity-indexed annuity: An annuity contract that provides a guaranteed minimum interest rate with the potential for additional earnings based on the performance of a common stock index.
Fixed annuity: An annuity contract that provides a current rate of interest, designated by the insurance company, as well as a minimum guaranteed rate
during the accumulation phase.
Free look period: A specified period of time designated in the contract in which allows the owner the opportunity to decide to accept or return the annuity for
a full refund of premium.
Guaranteed minimum interest rate: Often referred to as the floor, the minimum guaranteed interest rate specified in a fixed annuity represents the lowest possible rate the annuity can earn regardless of the economic conditions or market fluctuation.
Premium: The money paid to the insurance company to fund an annuity contract is premium. Premiums accompanying the annuity application can be submitted in the form of a check, money order, bank draft or often be transferred from an external source such as a CD, cash value, or another annuity.
Surrender charge: A fee, usually a percentage of the premium paid, the insurance company charges against the accumulated value if the annuity is surrendered (cashed in), or if a withdrawal exceeds the amount allowed in the
contract provisions.
Tax-deferral: Earnings in an annuity grow without being subject to taxation until withdrawals are made or a series of payments begins from annuitization.
Variable annuity:A contract in which the premiums paid to fund the annuity are invested in bond and stock funds, depending on the level of risk tolerance. The annuity value fluctuates according to the performance of the selected funds.
Penalty free withdrawal: Many annuity contracts contain provisions that allow a percentage of premiums paid to be withdrawn without paying a penalty or surrender charge. Withdrawal may be subject to taxation.