Annuities

Charitable Deduction

a deduction a taxpayer may take from taxable income if he makes a donation to a qualified charity and itemizes his deductions

Front-End Load

a fee an insurer charges at the time a contract owner purchases or makes additional contributions to a fixed or variable annuity to help cover the insurer's expenses of selling the annuity

Surrender Charge

a fee an insurer imposes when a deferred annuity contract owner makes excess withdrawals or fully surrenders the contract before the surrender charge period is over

Insurance Company

a financial institution that provides protection against the risk of financial loss caused by specified events

Annuity

a financial product that offers individuals a means of accumulating, protecting, and distributing assets

Deferred Income Annuity (DIA)

a fixed annuity bought in the years leading up to retirement that at the time of purchase locks in a guaranteed stream of income to begin at some specified future time

Longevity Annuity

a fixed annuity that a person buys at or near tetirement for a lump sum that at the time of purchase locks in a guaranteed stream of income to begin at an advanced age, typically at least age 80. AKA advanced life deferred annuity (ALDA)

Indexed Annuity (IA)

a fixed annuity that offers principal and interest rate guarantees, as well as the possibility of additional earnings based on changes in an index

Market-Value-Adjusted (MVA) Annuity

a fixed deferred annuity that adjusts withdrawal and surrender value based on changes in market interest rates

Policy Rider

a form that is attached to an insurance policy and changes or amends the policy's provision. It becomes part of the insurance contract and either expands or limits the benefits payable under the contract

Payee

a natural person or legal entity designated by a contract owner to receive annuity payments if the annuitant does not receive them

Annuity Unit

a share in a subaccount that is obtained by converting accumulation units at maturity (for a deferred annuity) or making a premium payment (for an immediate annuity) and that is used in the calculation of variable annuity payments

Annual Exclusion

a specified dollar amount of tax-free gifts that a taxpayer can make each year to any one donee

Index

a statistical measurement system that tracks the performance of a group of similar investments

1035 Exchange

a tax free replacement of one life insurance policy or contract covering the same person that is performed in accordance with the conditions of Section 1035 of the Internal Revenue Code

Gift Tax

a tax imposed on transfers of property ownership made during the property owner's lifetime

Guaranteed Minimum Death Benefit (GMDB)

a variable annuity death benefit rider that guarantees that if the annuitant dies before annuity payments begin, the beneficiary will receive at least a stated minimum amount, regardless of the contract's accumulated value at that time

Educational exclusion

an exclusion that allows a taxpayer to make unlimited tax-free gifts if those gifts are used to pay someone else's tuition and the payments are made directly to a qualified educational institution on behalf of the donee

Donee

an individual who is the recipient of a transfer of ownership of money or other property as a gift

Donor

an individual who transfers ownership of money or other property to another person without receiving something of at least equal value in return

Accumulation Unit

an ownership share in a selected subaccount of a separate account portfolio held during the accumulation period of a variable deferred annuity

Accumulated Value

during a deferred annuity's accumulation period, the amount paid for the deferred annuity, plus the investment earnings, minus the amount of any withdrawals and fees. AKA accumulation value, contract value, or account value

First-In-First-Out (FIFO)

federal tax rule stating that withdrawals from a nonqualified deferred annuity are considered a return of the owner's cost basis first, and are therefore nontaxable, until the entire cost basis has been withdrawn, All subsequent withdrawals are considered earnings and are taxed as income

Last-In-First-Out (LIFO)

federal tax rule stating that withdrawals from a nonqualified deferred annuity are considered a withdrawal or earnings, which is taxable income, until the owner has withdrawn all of the earnings in the contract. Thereafter, withdrawals are treated as a nontaxable return of the contract owner's cost basis

Aggregation Rule

federal tax rule which states that, for purposes of determining the amount of any withdrawal from a nonqualified deferred annuity that is taxable as income, all nonqualified deferred annuity contracts issued (1) after October 21, 1988, (2) by the same insurer to the same contract owner, and (3) during the same calendar year will be treated as one contract

Premature Distribution

for a deferred annuity, withdrawals taken before the contract owner reaches age 59 1/2

Gross Estate

for federal estate tax purposes, all property in which the deceased person had an ownership interest

Taxable Estate

for federal estate tax purposes, the amount of the deceased's gross estate minus allowable deductions

Marital Deduction

for federal gift tax purposes, a deduction that allows a taxpayer to make unlimited tax-free gifts to a spouse who is a US citizen

Qualified Retirement Plan

in the US, a retirement plan that receives favorable income tax treatment by meeting the requirements imposed by the US federal tax laws and ERISA

Favorable Tax Treatment

in the US, the IRC grants favorable tax treatment to annuities because they encourage consumers to save and provide a dependable income stream

Subaccounts

investment options resembling mutual funds that offer variable returns

Interest Credits

monetary credits earned on premiums that are determined according to a specified index-crediting mechanism that tracks changes in the reference index

Administrative Charge

a charge an insurer levies to cover the costs of administering a variable annuity contract

Guaranteed Minimum Interest-Crediting Rate

the minimum interest rate an insurer must pay on a fixed deferred annuity contract's accumulated value

Annuity payments

the monthly, quarterly, semiannual, or yearly periodic income payments that the insurer promises to pay under the terms of an annuity

Accumulation Period

the period between the contract owner's purchase of a deferred annuity and either the date that the contract's payout begins or the date that the contract's surrender value is paid

Payout Period

the period during which the insurer makes guaranteed annuity payments

Beneficiary

the person or legal entity who may receive benefits accrued or values remaining in the annuity contract upon the death of the contract owner or annuitant

Contract Owner

the person or other entity who owns and exercises all the rights and privileges of an annuity contract

Annuitant

the person whose lifetime the insurance company uses to determine the amount and duration of annuity payments payable under an annuity contract

Annuitization

the process of converting the accumulated value of a deferred annuity into annuity payments

Current Interest-Crediting Rate

the rate of interest that an insurer declares and pays on a fixed deferred annuity's accumulated value for a specified period of time

Annuity Period

the time span between each annuity payment

Assignment

the transfer of some or all of the rights in property by the owner of the property (the assignor) to another party (assignee)

Variable Annuity

an annuity under which the amount of the accumulated value and the amount of the annuity payments may fluctuate in accordance with the performance of one or more specified investment funds

Immediate Annuity

an annuity under which the annuity payments begin no later than one year after the annuity is purchased

General Account

an asset account that an insurer uses in support of all of the company's general obligations, including contractual obligations to owners of guaranteed insurance products, such as fixed annuities

Lifetime Stream of Income

US tax law requires annuity contracts to have a provision that guarantees annuity payments. This feature differentiates annuities from all other individual retirement products

Medical Exclusion

an exclusion that allows a taxpayer to make unlimited tax-free gifts if those gifts are used to pay someone else's medical expenses and the payments are made directly to a qualified medical care provider on behalf of the donee

Service Fee

a charge an insurer assesses for specific services or transactions requested by the contract owner

Contract Maintenance Charge

a charge an insurer assesses to cover general expenses incurred in maintaining annuity contracts

M&E Risk Charge

a charge an insurer imposes on a variable annuity contract that compensates the insurer for the mortality and expense risks inherent in the assumptions made when designing the product

Fund Expense Charge

a charge an insurer levies to cover the advisory and administrative services provided by the subaccount fund managers

Gift Splitting

an agreement between spouses to treat a gift made to a third party as though each spouse made one-half of the gift

Surrender Provision

an annuity contract provision which states the benefit amounts that an insurer will pay under a deferred annuity contract if the contract is fully surrendered prior to the annuity start date

Deferred Annuity

an annuity contract under which payment of the annuity payments is deferred for a period of time. This annuity gets its named from the deferral of annuity payments and not from the deferral of taxes

Guaranteed Minimum Accumulation Benefit (GMAB)

an annuity living benefit rider that guarantees that contract owner will always have a minimum protected amount if the annuity stays in force a specified period of time regardless of the accumulated value's investment performance

Guaranteed Lifetime Withdrawal Benefit (GLWB)

an annuity living benefit rider that guarantees that the contract owner may take withdrawals for life without annuitizing the contract even if the accumulated value is completely depleted

Guaranteed Minimum Withdrawal Benefit (GMWB)

an annuity living benefit that guarantees that up to a certain amount will be available for withdrawals annually-but not for life- during the accumulation period regardless of the accumulated value's investment performance

Fixed Period Annuity

an annuity option that guarantees the insurer will make annuity payments for a specified period of time

Life Annuity

an annuity option that guarantees the insurer will provide annuity payments for only as long as the annuitant lives

Fixed Amount Annuity

an annuity option that guarantees the insurer will provide annuity payments of at least a specified minimum amount for as long as the contract's value will provide, regardless of whether the annuitant is living

Life Income With Refund Annuity

an annuity option that guarantees the insurer will provide annuity payments throughout the annuitant's lifetime and guarantees the insurer will pay benefits at least equal to the annuity's purchase price if the annuitant dies. AKA a refund annuity

Life Income With Period Certain Annuity

an annuity option that guarantees the insurer will provide annuity payments throughout the annuitant's lifetime and guarantees the payments will be made for at least a specified period, even if the annuity dies before the end of that period

Joint and Survivor Annuity

an annuity option that provides a series of annuity payments based on the life expectancies of two annuitants, and those payments continue until the last annuitant dies

Individual Annuity

an annuity purchased and owned directly by a person or purchased by a legal entity, such as a trust, on behalf of a person

Group Annuity

an annuity purchased by a plan sponsor to provide annuity payments at retirement to plan participants.

Nonqualified Annuity

an annuity purchased outside of a tax-advantaged retirement plan or an IRA. Contribute after taxes, taxed on gains during withdrawal

Qualified Annuity

an annuity purchased to fund or distribute funds from a tax-advantaged retirement plan or IRA. Contribute on pre-tax based. Taxed on everything during withdrawal

Single-Premium Immediate Annuity (SPIA)

an annuity that allows the contract owner to make only one lump-sum premium payment and to begin receiving annuity payments immediately or no more that one year after the annuity is purchased

Joint Annuitant

another person, in addition to the primary annuitant, whose lifetime the insurance company uses to determine the amount and duration of annuity payments payable under an annuity contract

Fixed Accounts

backed by the insurer's general account, where they accumulate interest at the specified current interest rate, but no lower than the guaranteed minimum interest rate

Estate Taxes

taxes on property transferred at the property owner's death

Surrender Value

the amount of a deferred annuity's accumulated value, less any surrender charges, that the contract owner is entitled to receive if the contract is surrendered during its accumulation period

Annuity Options

the choices an annuity contract owner has as to how the insurer will distribute the annuity payments

Effects of Annuitization

the contract owner loses ownership of and access to the funds; the deferred annuity, in effect, turns into an immediate annuity; the insurer begins making annuity payments on the annuity start date

Annuity Start Date

the date on which the insurer is required to begin making annuity payments under a deferred annuity contract

Reference Index

the index specified in an indexed annuity contract, variations in which determine whether interest credits are earned