Annuity Terms

A

Account balance
The money you have in your annuity.
Other Terms: Contract Value

Accumulation phase
The time when your money can grow, and you might add more to it.
Other Terms: Growth Stage, Period

Advanced Life Deferred Annuity (ALDA)
An annuity that starts paying out at a later age, typically beyond 85, to provide income in late retirement.

Annual lock
This lets you protect the interest you earn on your annuity each year, keeping your gains safe from future losses.

Annual reset
A feature in some indexed annuities in which interest is credited based on the index's performance over each contract year.

Annuitant
The person who receives the annuity payments.

Annuitization period
The time when the annuity starts paying out regular income.

Annuitization
The process you turn your annuity savings into regular payments that can last for a set time or your whole life.

Annuity owner
An annuity owner is the person who controls the annuity and can make changes.

Annuity
An annuity is a financial product that gives you steady income for life and can grow your money.

B

Beneficiary
A beneficiary is the person you pick to get your money or income from your account when you pass away, making it easier for your family.

Bonus annuity
An annuity that offers an upfront bonus to the initial investment.

C

Cap
The most your annuity can earn over a time period you pick from the options provided.

Cash surrender value
The amount you get if you cancel your annuity before it starts paying out.

Commission
The fee paid to an agent or broker for selling the annuity, typically a percentage of the premium.

Commutation
The ability to convert future annuity payments into a lump sum, often subject to conditions and penalties.

Cost-of-living rider
An optional feature that adjusts annuity payments based on changes in the cost of living.

Contingent beneficiary
The person who gets the benefits if the primary beneficiary can't.

Cost basis
Cost basis is the money you first put into your investment.

Cost-of-Living Adjustment (COLA)
A feature that increases your annuity payments to keep up with inflation.

Cost
The fees you pay to set up and keep an annuity.
Other Terms: Fee, Charge, Price

Covered person
The person whose age decides the payout rate and gets lifetime income.
Other Terms: Protected person

Crediting strategy
Credit strategy is how interest is added to certain annuities.

D

Death benefit
Money paid to your beneficiary if you die.
Other Terms: Beneficiary benefit

Deferral bonus
Deferral bonus is extra money added to your income base if you wait to take income.

Deferred annuity
An annuity that starts paying you income at a future date.

Deferred income annuity
A deferred income annuity is an investment where you put in a lump sum and get regular payments starting at a future date you select.
Other Terms: Longevity annuity

Deferred
Deferred annuities allow you to save and grow your money now, so you can take payments or withdrawals later when you're ready.

Designated period annuity
An annuity that pays out for a specified period, regardless of the annuitant's lifespan.

Discretionary expenses vs. non-discretionary expenses
In retirement, discretionary expenses are for fun things like travel, and non-discretionary expenses are for basic needs like housing and food.
Other Terms: Essential expenses vs. non-essential expenses

Distribution phase
When you begin to get income from your annuity.
Other Terms: Income stage, Decumulation phase, Spending phase

Diversification
Diversification is putting your money in different types of investments to lower the risk of losing it all when the market changes.

Dollar cost average
Dollar cost average means spreading your investments over time to reduce risk.

E

Enhanced death benefit
An optional feature that increases the death benefit paid to beneficiaries, often tied to the performance of the annuity.

Equity-indexed annuity
An annuity that earns interest based on a specified equity-based index.

F

Fee-based annuity
Fee-based annuity is an annuity that pays advisors a yearly fee, not a commission.

Financial independence
Being able to pay for your needs and reach your financial goals.
Other Terms: Financial security

Financial professional
An expert who helps you understand your choices and reach your financial goals.
Other Terms: Financial Advisor, Financial Consultant

Fixed account
An account with a guaranteed interest rate, not tied to the market.
Other Terms: Fixed rate account

Fixed annuity
An easy-to-understand investment where you put in money, and the insurance company pays you a guaranteed interest rate.

Fixed indexed annuity
An annuity that provides returns based on a specified equity index but with a guaranteed minimum interest rate.

Flexible premium
Flexible premium contracts let you add money to your annuity at different times, like monthly or yearly, which can affect how much you earn in the future.

Free withdrawal amount
The most you can take out without fees.
Other Terms: Penalty-free withdrawal amount, Free Amount

Future value
The value of an investment at a specific date in the future, considering interest or growth.

G

Guaranteed annuity
An annuity that promises a minimum amount of income regardless of market performance.

Guaranteed growth
Guaranteed growth means your income will increase at a fixed rate over time, giving you more money in the future.
Other Terms: Roll-up

Guaranteed income
Income for life, possibly for your beneficiaries too.
Other Terms: Protected Lifetime Income

Guaranteed lifetime withdrawal benefit
Guaranteed lifetime withdrawal benefit ensures you get regular income for life, no matter what happens in the market.

Guaranteed minimum crediting rate
Guaranteed minimum crediting rate is the lowest interest you’ll earn each year on a fixed annuity.

Guaranteed Minimum Income Benefit (GMIB)
A promise that you’ll get a minimum amount of income, no matter how the investments perform.

Guaranteed Minimum Withdrawal Benefit (GMWB)
Ensures you can withdraw a minimum amount of money each year, even if your account balance drops.

Guaranteed period
The specified period during which the annuity is guaranteed to pay out.

I

Immediate annuity
An annuity that starts paying out right after you buy it.

Immediate income annuity
An immediate income annuity gives you regular payments right away after you invest a lump sum.

Income annuity
A type of annuity designed to provide regular income, usually for life.

Income floor
The minimum guaranteed income that will be provided by the annuity regardless of investment performance.

Income rider
An optional feature you can add to your annuity to get regular income.

Index
Index is a measure used to track the performance of a market section.

Indexed
An indexed annuity protects your money from losses and lets it grow if the stock market does well.

Interest rate floor
Interest rate floor is the lowest interest you’ll get for a certain time, even in a bad market.

Investment-Only Variable Annuity (IOVA)
This is a variable annuity focused solely on investment without any living or death benefit riders.

J

Joint and survivor annuity
An annuity that continues to pay income to a spouse after the annuitant dies.

Joint annuitant
A joint annuitant is the second person in an annuity, usually allowing payments to keep going to a surviving spouse.

Joint life
Adding someone, usually a spouse, to extend lifetime income if they outlive you.
Other Terms: Joint protected person

L

Life with period certain
An annuity that pays out for life but guarantees payments for a minimum number of years.

Liquidity
The ease with which you can access the funds in your annuity, often limited by surrender charges and other restrictions.

Liquidity risk
Liquidity risk is the chance you’ll need your money early, causing penalties or problems.

Living benefits
Optional, extra-cost benefits that provide guaranteed income.
Other Terms: Protected income benefits

Longevity annuity
An annuity designed to start payments at a later stage in life, typically around age 85, to hedge against outliving retirement savings.

Longevity risk
Longevity risk is the chance you’ll live longer than your money lasts.

M

Market risk
Market risk means you could lose money if the market drops.

Market value adjustment
A market value adjustment changes the amount you can take out from a fixed annuity, depending on how interest rates have changed since you got the account.

Market volatility
Quick changes in investment values can affect your annuity, but some annuities can keep your income safe even when markets drop.
Other Terms: Market ups and downs

Minimum guaranteed surrender value
The least amount you get when withdrawing money after early fees.
Other Terms: Minimum guaranteed annuity value

Mortality and expense risk charge
A fee charged by the insurance company to cover risks and costs.

Mortality credit
Extra money you get in an annuity because some annuitants don't live as long as expected.

Mortality table
A statistical table used by actuaries to calculate the probability of a person dying before their next birthday, used in pricing annuities.

Multi-Year Guaranteed Annuity (MYGA)
A fixed annuity that guarantees a fixed interest rate for a specified number of years.

N

Non-forfeiture clause
A clause that ensures the annuity owner receives some value if they cancel the annuity early, usually the cash surrender value.

Non-qualified annuity
An annuity bought with after-tax money.

P

Participation rate
The percent of index growth added to your annuity.
Other Terms: Index performance crediting rate, Index Participation Rate

Payout phase
The payout phase is when you start getting regular payments from your annuity, which can last for your lifetime or a specific number of years.

Performance trigger
A set amount added if the index is positive or unchanged.
Other Terms: Performance credit

Period certain
Period certain guarantees payments for a chosen time, even if you pass away.

Persistency
How long people keep their annuities without canceling them.

Persistency rate
The rate at which policyholders keep their annuity contracts in force without lapsing or surrendering them.

Premium
The money you pay into the annuity.
Other Terms: Annuity contribution, Purchase payments

Premium tax
A tax imposed on the premiums paid into an annuity, varying by state.

Pre-tax dollars
Money that hasn’t been taxed yet, used to fund annuities linked to tax-qualified retirement plans like 401(k)s.
Other Terms: Qualified dollars, Qualified money

Principal protection
A feature in some annuities that guarantees the return of the original investment, minus any withdrawals and fees.

Q

Qualified Longevity Annuity Contract (QLAC)
A deferred annuity that starts payouts at a later age and is held within a qualified retirement plan.

R

Reinsurance
The practice of insurers transferring portions of risk portfolios to other parties to reduce the likelihood of paying large claims.

Required minimum distribution
Required minimum distribution is the amount you must take out of your retirement account each year after age 72.

Replacement ratio
The percentage of pre-retirement income that is replaced by annuity payments during retirement.

Rider
An add-on to your annuity that gives extra benefits or protections, like guaranteed income, for an extra cost.
Other Terms: Benefit, Option

Risk-adjusted return
Returns from an annuity investment, considering the risk.
Other Terms: Estimated performance

Risk tolerance
How much market risk you can handle.
Other Terms: Risk Comfort Level

S

Sequence of returns risk
Sequence of returns risk means that if the stock market drops early in your retirement, it can really hurt your savings because you're already taking money out.

Single premium
A single premium annuity means you pay once and start getting income right away when you retire.

Spousal continuation
Spousal continuation lets your spouse take over your guaranteed income if you pass away.

Spread
Spread means they take a fixed rate from any growth in the index, and what's left is added to your annuity.

Structured annuity
An annuity that offers a combination of fixed and variable features to balance risk and return.

Structured settlement
Regular payments from an annuity, usually as a result of a legal settlement.

Subaccount
A subaccount in a variable annuity is a choice for investing your money, offering different levels of risk and return so you can find a plan that matches your goals.

Surrender charge
A surrender charge is a fee you pay if you take money out of an annuity too soon after buying it.

Surrender period
The surrender period is the time you might have to pay a fee if you withdraw too much money from your annuity.

Survivorship annuity
An annuity that continues to pay income to a surviving spouse or other beneficiary after the primary annuitant's death.

Sustainable withdrawal rate
Sustainable withdrawal rate is how much you can take out without running out of money.

T

Tax-deferred
You don't pay taxes on the money in your annuity until you withdraw it.

Terminal illness rider
This option allows the annuitant to access a portion of their annuity's value if they are diagnosed with a terminal illness.

Transfer of value
A taxable event that occurs when the ownership of an annuity contract is transferred.

Two-tier annuity
An annuity with different values for cashing out early versus staying invested for a set period.

U

Underlying investment
The actual investments that back a variable annuity, such as mutual funds or other securities.

Unisex annuity
An annuity that uses the same rates for men and women.

V

Variable annuity
A variable annuity lets you invest in different markets to grow your money and help provide a guaranteed income for life, but you could also lose money.

Variable annuity investment options
Investment choices for variable annuities.
Other Terms: Variable portfolios, Subaccounts, Investment division

Variable annuity
A variable annuity lets you invest in different markets to grow your money and help provide a guaranteed income for life, but you could also lose money.

Variable
Variable annuities can go up or down in value based on market performance, and you choose the investments within the contract.

Vesting schedule
The schedule by which the annuitant earns the right to the annuity’s benefits, often used in employer-sponsored plans.

W

Waiver
Waiver means you won’t pay early withdrawal fees during tough times like hospitalization or job loss.

Withdrawal base
The amount you can withdraw from your annuity.
Other Terms: Income Base

Withdrawal percentage
The portion of your annuity's value you can take out each year.

Sources

1. Annuities Language Glossary. https://www.protectedincome.org/annuities-language-glossary/.