Reference
Annuity glossary.
Plain-English definitions of the terms used across this site and in annuity contracts.
- Accumulation phase
- The period when money inside an annuity is growing before you begin taking income or withdrawals.
- Annuitization
- Converting an annuity balance into a stream of guaranteed payments, often irreversible.
- Cap rate
- The maximum interest credit that can be applied to an indexed annuity in a given period.
- Claims-paying ability
- An insurer's financial strength to meet its obligations; the source of any annuity guarantee.
- Deferral period
- The time between purchase and when annuity payments begin.
- Exclusion ratio
- The portion of each non-qualified annuity payment that is considered a return of principal and not taxed.
- Fixed annuity
- An annuity that earns interest at a rate declared or guaranteed by the insurer.
- Fixed indexed annuity
- An annuity whose credited interest is tied to a market index but includes a floor that protects against index losses.
- Free withdrawal provision
- The amount, often 10% annually, that can be withdrawn without surrender charge.
- Income rider
- An optional benefit that creates a guaranteed withdrawal base or income amount, usually for an additional charge.
- Index
- A market benchmark, such as the S&P 500, used to calculate indexed-annuity credits.
- Joint life
- An income option that continues payments until the second of two annuitants dies.
- Market value adjustment (MVA)
- A feature of some fixed annuities that can increase or decrease surrender values based on interest-rate changes.
- Modified endowment contract (MEC)
- A life insurance or annuity contract that has been overfunded in a way that causes less favorable tax treatment of withdrawals.
- Participation rate
- The percentage of an index's gain that is credited to an indexed annuity.
- Period certain
- An income option that guarantees payments for a set number of years, even if the annuitant dies.
- Qualified money
- Retirement funds that have not yet been taxed, such as IRA or 401(k) assets.
- Non-qualified money
- Savings that have already been taxed, such as bank or brokerage account funds.
- Qualified Longevity Annuity Contract (QLAC)
- A deferred income annuity purchased with qualified dollars; allows RMD deferral on the premium used.
- Required minimum distribution (RMD)
- The minimum amount a retiree must withdraw each year from qualified accounts starting at a specified age.
- Registered Index-Linked Annuity (RILA)
- An annuity that links returns to an index with a buffer or floor against losses, subject to caps.
- Spread / margin
- A deduction from an index gain before interest is credited to an indexed annuity.
- Surrender charge
- A fee for withdrawing more than the free amount during the surrender period.
- Surrender period
- The number of years during which withdrawals above the free amount may incur a charge.
- Tax-deferred growth
- Earnings are not taxed until withdrawn, allowing potential compound growth.
- Variable annuity
- An annuity with subaccounts invested in the market; values can fluctuate.