Popular Terms in our Annuity and Investment Glossary
10% Penalty Tax: a 10 percent IRS fee charged upon the withdrawal of pre-tax savings (contributions or earnings) from an annuity before the age of 59 1/2.
1035 Exchange (Annuity or Life Insurance Contract): a tax-free transfer of an annuity contract from one insurer to another. This does not apply to transfers between sub-accounts in an annuity.
401 (k): employer-sponsored retirement savings plans that allows employees to withhold and invest a portion of their income, defers taxes on the investment until withdrawal, and is sometimes partially or fully matched by the employer.
403 (b): a tax-deferred retirement savings plan for teachers and some non-profit agency employees where contributors may invest a portion of their income, pre-tax, in annuities or mutual funds.
457 Plan: a tax-deferred retirement savings plan for governmental and certain non-governmental employees which does not receive matching contributions and is not considered a qualified retirement plan.
Accidental Death Benefit: a limited insurance policy/benefit, often in the form of a policy addition, in which the proceeds are paid out to the beneficiary only in the event of an accident.
Accidental Death Benefit Option: in the event of a terminal illness, the insured has the option to withdraw some of the death benefit for his/her personal use.
Accrued Interest: the amount of interest that has accumulated on a bond since the principal investment or the payment of the last interest amount, if this has occurred before.
Accrued Monthly Benefit (AMB): the monthly amount earned toward an employee’s pension via the individual’s service to the employing company.
Accumulation Phase: the period of time when an annuity investor builds up the value of his/her investment through tax-deferred savings.
Accumulation Unit Value (AUV) : an annuity’s sub-account price per share during the accumulation phase; the net asset value after income and capital gains have been included and sub-account management expenses have been subtracted.
Actuary: an individual who uses statistical mathematics to calculate thepremiums, dividends, reserves, and pension, insurance and annuity rates for an insurance company or other institution involved with fiscal risk.
Adjusted Gross Income (AGI): the amount of taxable income belonging to a person after subtracting allowable adjustments from the total income received.
Administrator: an individual or a bank that is court-appointed to distribute the estate of a deceased person who was not appointed in the decedent’s will.
After-Tax Dollars: The amounts of money remaining after taxes have been paid on it.
Age-Weighted Plan: a retirement plan in which both age and compensation level are used in order to determine benefits.
Amortization: the reduction of a debt, on a gradual basis, through making regular, equal payments that meet current interest amounts and that will eliminate the debt in total by its maturity date. It is a method of measuring the consumption of the value of long-term assets.
Anniversary Date: the anniversary of the date on which an annuity starts or becomes effective.
Annual Gift: an annual gift is a donation, often associated with annuities, that is made every year and provides significant tax savings for many individuals.
Annual Percentage Rate (APR): the cost of a consumer loan expressed as a basic, yearly percentage rate, calculated by the total interest to be paid in a year divided by the balance due.
Annual Policy Fee: a fee covering the costs of maintaining and administering an account during the accumulation phase, which is often waived once an account’s value reaches a certain level.
Annual Reset: a way of calculating annual yield for an index annuity in which the baseline from which growth is measured resets every year; therefore, keeping the account from decreasing below the highest anniversary value.
Annuitant: the person, usually the annuity owner, whose life expectancy is used to calculate the income payment amount on the annuity and who also, usually, receives payments from the annuity plan.
Annuitant-Driven: a annuity contracts with provisions that trigger upon events pertaining to the annuitant such as the death of a designated individual, reaching of a certain age or becoming disabled.
Annuitization (annuitize): the process of converting an annuity investment into a series of periodic income payments made over a specific period of time.
Annuity Certain: an immediate annuity income plan from which payments are made for a defined period of time, regardless of any incident.
Annuity Contract: a legal contract outlining each party’s obligations in an annuity coverage agreement, in which an insurer promises to make periodic payments to a designated individual over a specific period of time beginning on a set date in exchange for that individual’s payment of premiums to the insurer.
Annuity Owner: the person or people who make decisions about an annuity’s investments, including making withdrawals, surrendering or changing beneficiaries, etc.
Annuity Period: the length of time – monthly, quarterly, semi-annually, or annually – between income payments made under an annuity income plan.
Annuities: an annuity is a contract issued by a life insurance company that allows individuals to make tax-deferred contributions to a retirement savings account and later receive set payments on a periodic basis.
Anticipated Initial Investment: the amount of money you want to invest at the beginning.
Arbitrage: arbitrage is the simultaneous buying and selling of an asset in different markets in an attempt to make a profit by taking advantage of the price differences of identical or similar financial instruments, on different markets or in different forms.
Ask Price: the price of shares established by the specialist or dealer who offers them.
Asset Allocation: the distribution of assets across major asset categories that can reduce risk and maximize returns on the investment.
Asset Manager: the person in charge of the financial assets such as immediate annuities, deferred annuities or stocks and bonds.
Asset Protection Trust (APT): an APT is a legal arrangement in which an individual gives fiduciary control of property to a person or institution for the benefit of beneficiaries, applying to both annuities and other investments.
Assets: Items of ownership held to have positive economic value, which can be converted to cash.
Assignment: the transfer of the ownership of rights of a life insurance policy from one person to another.
Assumed Investment Rate: the minimum rate of interest that must be obtained on investments in a variable annuity in order to cover the costs and expected profits of an insurance company.
Audit: an unbiased review and examination of financial and accounting documents done to determine the consistency and accuracy of these documents, as well as whether they meet requirements imposed by law and accounting principles.
Averages: an average is the non-weighted mean of a group of stocks designed to represent the overall market or some part of it, such as the Dow Jones Industrial average.
Backdating: a procedure for making the effective date of a policy earlier than the application date.
Back-End Charge: a fee incurred by an investor for cashing out early on a deferred or variable annuity.
Backup Withholding: a backup withholding is a mandatory withholding that may be imposed when rules regarding taxpayer identification numbers are not met by the individual in order to ensure the taxpayer will have taxes withheld from income.
Bailout Provision: assures the charge-free withdrawal of all funds from an annuity account, should a fixed annuity’s interest rate fall unpredictably below a rate specified in the annuity contract.
Balance Inquiry: an online function allowing contract holders to check the balance of all accounts held in an annuity.
Basis Point: unit of measure, equal to 1/100th of one percent, used to denote change in a financial instrument, such as calculating changes in yield of a fixed-income security or interest rate.
Before-Tax Dollars: the amount of money in an investment that has not yet been subject to taxation.
Benchmark Index: an index that serves as the standard against which to measure the performance of market allocations in a variable annuity, and also compares performance between a variable annuity and an investment portfolio.
Beneficial Owner: the individual who receives the benefits of owning a security or property, regardless of ownership.
Beneficiary: a person, usually a spouse or child, who is designated to receive the annuity payments once the annuity contract owner is deceased.
Bequest: a bequest is the process of designating cash, securities, life insurance proceeds, real estate and/or personal property to beneficiaries through a will.
Business Insurance: policies written for business purposes, such as key employee, buy-sell and business loan protection.
Buy-Sell Agreement: an agreement among owners in a business designed to dispose of an interest in a business when the business’s owner retires, becomes disabled or dies, that states that heirs are legally obligated to sell their interest to the remaining owners and the remaining owners are legally obligated to buy at a price fixed in the buy-sell agreement.
Bond: form of debt created by an institution that wants to borrow money for a defined period of time at a specific interest rate.
Bonus Annuity: the amount added by an insurance company to the premium payments of fixed, deferred annuities with surrender charges.
Bonus Rate: the additional interest accumulated in the first year of a deferred annuity that is added to the sum upon which interest is calculated in later years.
Cafeteria Plan: an employee benefit plan that provides flexible dollars to be used by employees to pay for specific benefits from a list of choices, such as life insurance or health insurance, to put into a 401(k) plan or to use instead of a 401(k).
Catch-Up Provision: a provision which allows employees with 403(b) plans to contribute more than is usually allowed to their plans.
Certificate Annuity: a type of annuity in which the interest rate guarantee period is equal to the surrender charge period.
Certificate of Deposit (CD): a low risk, low return investment in which certificates are issued by banks in exchange for a cash deposit and are held for a certain period of time at a set interest rate, where the principal amount and all accumulated interest is paid out at the end of the specified time period.
Charitable Deduction: an income tax deduction taken by an individual, involving donations to a qualified charitable institution.
Charitable Gift Annuity: an annuity involving a contract between a foundation and a donor, under which the donor provides property to a charity in exchange for the foundation’s payment of an annuity.
Charitable Lead Trust: a trust that provides income to a foundation for a specific number of years where the principal is returned to the donor or others the donor has specified at the termination of the trust period.
Charitable Remainder Annuity Trust: a trust in which a certain amount of the annual income is received by the annuity owner and the remainder is passed on to a designated foundation.
Charitable Remainder Unitrust: a trust which specifies that a fixed percentage be paid to the beneficiary at least once a year; where the amount paid varies based on the annual reevaluation of the trust principal.
Children’s Term Insurance Rider: a term insurance plan which covers the insured’s dependents for a flat premium.
Collateral Assignment: allows the beneficiary to assign all or part of a life insurance policy as security for a loan. In the event of the insured’s death, the creditor would receive only the amount due on theloan.
Contestable Clause: a provision in an insurance policy setting forth the conditions under which the insurer may contest or void the policy.
Contingent Beneficiary: the person named to receive policy benefits if the primary beneficiary is deceased at the time the benefits become payable.
Convertible (conversion): the ability of a policy to be changed to another form by contractual provision and without evidence of insurability.
Cliff Vesting: a vesting schedule by which employees may not receive any part of a retirement benefit from the employing organization until “fully vested”.
Co-Annuitant or Spouse: a secondary individual whose life determines the length of an annuity contract, which typically prolongs a contract.
Collateral Assignments: the ownership rights in a contract or account are transferred from one person to another to serve as collateral for a debt and are reverted to the original owner once the debt is repaid.
Collateral: certain property or assets provided by an individual seeking a loan as security for repaying the loan amount.
Compound Earnings: the reinvestment of interest earnings back into the annuity account in a deferred annuity.
Compound Interest: interest paid on money that accrues on both principal and accumulated interest.
Compounding of Gains: interest credited to your policy that is added to your principal and interest credited in prior policy years.
Confinement Waiver: an arrangement in which surrender charges are eliminated if the annuity owner must be cared for in a hospital or long-term care facility due to medical necessity.
Consumer Price Index (CPI): a metric used to determine the percent change in costs of consumer goods and services, serving to relate consumer-felt inflation.
Contingent annuitant: a person designated to receive annuity payments upon the death of the original annuitant.
Contingent Deferred Sales Charge (CDSC): a fee charged to the account of a deferred annuity or variable annuity upon the full surrender of an annuity contract or upon the withdrawal of funds in excess of annuity contract limits.
Contract Owner: the purchaser of an annuity contract, either person or entity, and holder of all rights pertaining to the annuity contract, including the responsibility of funding the annuity.
Contract Termination: the forced end to an annuity due to death of the annuitant.
Contract Value: the total of paid premiums and earnings after accounting for any charges, withdrawals or fees that may apply.
Convertible Bonds: bonds that can be converted to shares of common stock and other securities in the same organization.
Corporate Gift: a gift given by a corporation to a designated entity in which federal tax benefits may be derived.
Cost Basis: the original payment paid to an annuity.
Cost of Insurance (COI): when life insurance protection is used to fund benefits in a qualified retirement plan or Section 403(b) tax-deferred annuity.
Cost of Waiver: a benefit available on qualified life insurance contracts that provides for the waiver of payment of premiums that are due while the insured is totally disabled.
Current Interest Rate: the interest rate that an annuity is paying set by the insurance company at the time of issue and is guaranteed for a specific length of time.
Custodian: the institution or individual holding the assets of another institution or individual.
Death Benefit: the guarantee of payment of the annuity account value to designated account beneficiaries upon the early death of an annuitant.
Debenture: a bond that is backed by the integrity of the borrower rather than by physical assets and is otherwise unsecured.
Debt Instruments: investments, such as CDs or government bonds, involving the lending of money, where returns are made by sharing interest.
Decreasing Term: a form of life insurance that provides a death benefit which decreases throughout the term of the contract, reaching zero at the end of the term.
Deferred Annuities: deferred annuities are variable or fixed annuity contracts for people who want to save income on a tax-deferred basis for several years and then convert to a payout schedule upon retirement.
Deferred Compensation: compensation for services rendered, provided under an agreement stating that such compensation will be paid sometime in the future after the actual services have been performed.
Defined Contribution Plan: a pension plan whereby an employer deposits a yearly contribution into the plan for each of the plan’s participants, with retirement income depending on these contributed amounts.
Defined Debit Plan: a pension plan in which a lifetime retirement income is guaranteed on the basis of employee income and/or total years of service to the employer.
Direct Rollovers: a monetary transfer of an eligible retirement plan classified as a rollover but which occurs from one investment company directly to another and is not taxed.
Discretionary Income: the amount of money from an individual’s income that remains after an individual pays essential bills, such as food, housing and taxes.
Disposition: the ability to distribute funds pending the termination of an annuity.
Diversification: a method that helps an annuitant reduce or avoid risk by distributing funds over multiple asset classes in a variable annuity instead of holding funds in a single investment.
Dollar Cost Averaging: a strategy used in a variable annuity where there is an investment of a fixed amount of dollars at regular intervals.
Double Indemnity: payment of twice the basic benefit in the event of loss resulting from specified causes or under specified circumstances, such as accidental death.
Duration: the timeframe of an annuity contract lasting 1, 2, 3, 5, 7,10 or even 14 years for some products.
Effective Annual Yield: the rate used in a deferred annuity after the daily compounding and crediting of the annuity’s interest, including any first-year bonus.
Effective Interest Rate: the interest rate of an annually compounded annuity.
Equity Indexed Annuities (EIA): A tax-deferred annuity, whose interest is linked to an equity index, guarantees a minimum interest rate and protects against loss of principal.
Equity Indexed Deferred Annuities: a tax-deferred annuity whose interest is linked to an equity index, guarantees a minimum interest rate and protects against loss of principal.
Employee Retirement Income Security act (ERISA): the federal law that protects the retirement assets of individuals by enforcing rules that qualified plans must follow in an effort to establish minimum standards for private industry pension plans.
Employer Plan: a highly regulated and restricted tax-qualified retirement plan that an employer establishes to benefit employees.
Endorsement: an addition written to an insurance policy that includes provisions superseding those of the original policy.
Endowment: an insurance policy that pays out its face amount to the individual insured or, if deceased, a designated beneficiary, when it reaches maturity.
Enhanced Dollar Cost averaging Program: a dollar cost averaging program often providing a higher interest rate in particular cases in a fixed annuity.
Entity Agreement: a buy-sell agreement in which the company agrees to purchase the interest of a deceased or disabled partner.
Equitable Owner: the beneficiary of a property held in a trust. Equity Index: the index used to measure the performance of stocks or bonds selected for indexing the annuity in equity-indexed annuities.
Equity Indexed Annuities: an annuity whose returns are based upon the performance of an equity market index and principal is protected from losses in the equity market.
Equity Vehicle: investments involving ownership of company stock, futures, commodities or real estate.
Estate Planning: the preparations made for the disposition of an individual’s property prior to or after one’s death.
Excess Contributions to an IRA: a contribution that exceeds the combined deductible and nondeductible limits established by the IRS and can be subject to penalties if not removed.
Exclusion Ratio: the ratio of taxable to nontaxable proceeds in an immediate annuity payment based on earnings and the return of the original investment.
Executor: an individual designated in a will to carry out the distribution of an individual’s property under the supervision of a court.
Expense Ratio: the percentage of an annuity account that is paid on a yearly basis toward insurance and investment charges.
Face Amount: the amount of insurance provided by the terms of an insurance contract.
Fiduciary: an individual or organization that exercises control over a pension plan and/or the assets it holds.
Fiscal Year: the period of 365 days that is used for purposes of accounting and taxation; and is not necessarily the same period as a calendar year.
Five-Year Annualized Total Return: a percentage figure which reflects an annuity’s sub-account’s total return averaged over five years.
Fixed Annuities: an investment vehicle offered by insurance companies that guarantee a stream of fixed payments over the life of the annuity or the life of an Annuitant.
Fixed Indexed Annuities: an annuity whose returns are based upon the performance of an equity market index and principal is protected from losses in the equity market.
Fixed Deferred Annuities: with fixed annuities, an insurance company offers a guaranteed interest rate plus safety of your principal and earnings, in which the interest rate will be periodically reset but will never fall below a specified rate.
Flat-Rate Premium: the premium rate paid on a yearly basis by pension plans to the Pension Benefit Guaranty Corporation (PBGC) on behalf of each plan participant.
Flexible Premium Annuity: an annuity that has a regular periodic payment that varies.
Flexible Premium Deferred Annuities (FPDA): type of annuity in which the owner has the option to invest more money in the future, and which forgoes periodic payouts in favor of compounding interest.
Flexible Premium: a type of annuity where after depositing the initial premium, further investments can be made into the same annuity. Forced annuitization: the mandatory liquidation of an annuity and dispersion of funds usually triggered by the death the annuitant.
Forfeiture: the amount lost when a pension plan participant leaves the employing organization before becoming fully vested under the plan’s schedule.
Free Look Provision: the provision in an annuity contract stating that the owner of the contract has between 10 and 20 days to review the contract immediately after buying it, giving the buyer the chance to return the contract to the insurer for a total refund.
Free Withdrawal Provision: the provision in an annuity contract that allows the owner to withdraw some part of its face value, without the imposition of a withdrawal charge, during the accumulation period.
Frozen Plan: a qualified retirement plan that disallows the continuing benefits, accruals or additional contributions for current employees and does not allow the recognition of new plan participants.
Fully-Funded: When a pension plan has enough assets to pay for all of its current benefits and those promised for the future.
Gift Annuity: an annuity involving a contract between a foundation and a donor, under which the donor provides property to a charity in exchange for the foundation’s payment of an annuity.
Guaranteed Interest Contract Annuity: an annuity in which the interest rate is guaranteed for a specific amount of time.
Guaranteed Interest Rate: the minimum interest rate an insurer will credit during an annuity contract’s accumulation phase.
Guaranteed Minimum Surrender Value: national association of Insurance Commissioners requirement in which investors must receive at least 90% principal + 3% for every year the index annuity contract was held.
Immediate Annuity: an annuity which is purchased with a single payment and begins to pay out immediately, liquidating the principal over time.
Income or Payout Options: the various ways the owner of an annuity contract may receive income from an immediate annuity. Life, Period Certain, Fixed Period, Joint and Survivor, etc.
Incontestable Clause: a clause in a policy specifying that if a policy has been in effect for a given length of time, the insurer shall not be able to contest the statements contained in the application.
Index: a statistical system that measures and tracks the performance of similar investments as a group. S&P, Nasdaq, Hang Seng, Russell 2000, S&P Midcap
Indexed Annuities: an annuity offering a guaranteed minimum return rate; that may also offer additional interest earnings based on the value of an equity index.
Insurability: acceptability to the insurer of an application for insurance.
Insurable Interest: upon the death of the insured, an individual would suffer financial loss.
Insurance Policy: the contract, in printed form, between an insurer and the insured. Index Fund: type of mutual fund that holds bond or stock investments with the goals of matching a specific market index.
Individual Retirement Account (IRA) : a tax-advantaged personal savings plan that allows an individual to set aside money for retirement.
Initial Interest Rate: the rate of interest that is applied to the first deposit made to a fixed, deferred annuity, with the length of time this rate is guaranteed specified in the annuity contract.
Insurer: the company to whom the owner pays the premium which invests the premium and provides payouts and payments.
Integration: a way of meshing a qualified benefit plan with social security benefits so that the qualified plan may discriminate in favor of highly compensated employees to the extent allowed.
Interest-Only Option: a settlement option for annuities in which an individual is paid only the interest on the maturity proceeds.
Interest: fees paid by banks, entities that issue bonds and other financial institutions for the use of money provided on loan.
Joint Annuitant: an individual named in an annuity contract in addition to the owner, whose age and life expectancy are used alongside that of the contract owner’s in order to determine annuity payments.
Joint Life Annuity: an annuity that continues to provide payments to a spouse after the death of the contract owner, regardless of the date of the death, also allowing for the designation of additional beneficiaries if the spouse dies.
Joint Owner: an individual who co-owns an annuity contract with another person, giving both the right to make and approve decisions relating to the contract.
Key Person (Key Man) Insurance: an insurance policy owned and payable to the employer in which insurance on the life of a key employee whose death would cause the employer financial loss is owned.
Lapsed Policy: an insurance policy which has been allowed to expire because of nonpayment of premiums.
Level Term Insurance: a type of term policy where the face value remains the same from the effective date until the expiration date.
Life Insurance: an agreement that guarantees the payment of a stated amount of monetary benefits upon the death of the insured.
Long Term Care Insurance: an insurance policy that provides benefits for the chronically ill or disabled over a long period of time.
Long Term Equity Anticipation Security (LEAPS): refers to call or put options that have long expiration dates.
Life Annuity: an annuity that continues to pay out as long as the annuitant is alive.
Liquidity: the ability to quickly convert assets into cash by an individual or organization without incurring significant losses of value.
Living Trust: a trust created for the trustor and administered by another party while the trustor is still alive.
Load: the sales fee or charge imposed on the owner who buys an annuity contract.
Long Position: an agreement between parties for one to buy an asset at a particular date in the future for a pre-determined price.
Market Value Adjustment (MVA): type of fixed annuity in which there is a guaranteed rate unless the contract owner withdraws amounts that exceed a specific free-withdrawal amount or if the owner terminates the annuity contract before it matures.
Maturity Date: the date on which an annuity starts to make income payments to an annuitant.
Medicaid Annuity: the term given to the process of using an immediate annuity to help protect assets against the high cost of nursing homes and expensive healthcare charges.
Medical Information Bureau (MIB): a cooperative data exchange that stores coded information on the health histories of persons who have applied for insurance from subscribing companies in the past.
Mortality Cost: the first factor considered in life insurance premium rates, in which insurers have an idea of the probability that any person will die at any particular age.
Mortality Table: a table showing the incidence of death at specified ages, used to determine the mortality cost.
Money Market Fund: a type of mutual fund that makes investments in a variety of short-term debt options.
Money Market Portfolio: a collection of investments owned by the same individual or organization.
Money Market: the market for very liquid, low-risk and short-term assets.
Morningstar Rating: a five-star rating system of annuity products based on their quality as measured by Morningstar, an independent provider of investment information, with five stars being the highest possible rating.
Mortality and Expense Risk Charge (M&E): a fee for insurance guarantees, including the death benefit, the choice of guaranteed lifetime payout options and the guarantee that insurance charges will not increase. Multiple Premium
Multi Year Guaranteed Annuities (MYGA): an annuity contract which guarantees fixed payments for a particular period of time to the annuity owner.
Mutual Fund: an account combining the funds of many individuals, usually established by a financial service company, in order to invest these funds in a range of financial instruments.
Net Worth: the difference between the total value of an individual’s assets and liabilities.
Non-Prescribed Annuity: the return of capital from a non-prescribed annuity plan which is not subject to taxation.
Non Qualified Deferred Annuities: a contract that provides for tax deferral of investment income until withdrawn from the contract.
Non-Qualified Income Annuity: a contract that provides periodic payments based on life or joint life expectancies and/or a period certain, the amount used to purchase the contract, the terms of the payout, and an assumed return rate.
Non-Qualified Sources: Sources of money where the money has already been taxed, such mutual funds and CDs.
Non-Resident Alien (NRA): a person who is not a citizen of the United States or does not maintain a tax residence within the country, who is subject to special tax consideration, including foreign fiduciaries, foreign partnerships and foreign corporations.
Occupational Hazard: a condition in an occupation that increases the peril of accident, sickness, or death, usually resulting in higher premiums for the insured.
Offshore Annuities: annuities which allow for tax-deferred account accumulation and build up through offshore investment funds.
One-Year annualized Total Return: an average percentage figure reflecting a sub-account’s total return over one year.
Owner-Driven: an annuity whose provisions trigger upon the death, reaching of a certain age, or disability of the contract owner.
Participant: an individual who participates in a retirement plan sponsored either by his employer or, if self-employed, by himself or herself.
Participation Rate: the amount of the percentage change of the index used to determine the amount to be credited to your policy for that year.
Payout Period: the period of time during which an annuitant is provided regular income payments from an annuity.
Payout Ratio: percentage of earnings paid out to shareholders based on a calculation achieved by dividing the dividend amount by the earnings amount.
Pension Annuities: a qualified retirement plan set up by employers for employees.
Pension Plan: a qualified plan designed to provide payments to an employee upon retirement, which comprises a yearly funding commitment from employers, no access to plan funds before retirement, and restrictions on investments in employer stock to ten percent.
Percentage Change: the change in the S&P 500 index from the beginning of the term to the end of the term expressed as a percentage.
Period Certain: an annuitization-method option whereby the annuitant may choose to receive periodic payments for a specific period of time, with the payout amount determined by the contract’s value and the length of the period of time chosen.
Periodic Transfer: a changing of ownership from one party to another or a movement of funds from one account to another.
Permanent Life Insurance: a term loosely applied to life insurance policy forms, other than Group and Term, which do not expire.
Policy Fee: a flat fee added to each insurance policy that is usually the same for all ages and amounts.
Preferred Risk: any risk considered to be lower than the standard risk upon which the premium rate was calculated.
Perpetuity: a type of investment security that has no maturity date or an annuity that is paid out for life.
Point-to-Point: a way of calculating index annuity yield where the total yield is the difference in index value from the day the annuity is purchased to the day it expires.
Portfolio: a group of investments that are considered a unit.
Premature Distribution: Withdrawals made from certain tax-favored plans before the contract owner reaches 59 ½ years old and may be subject to an additional 10% federal income tax.
Premium Bonus: additional money that is credited to the accumulation account of an annuity policy under certain conditions by an insurer and expressed as a percentage of the deposited amount.
Premium Tax: a separate tax imposed on premiums for life insurance or an annuity plan by state governments.
Prescribed Annuity Contracts (PAC): annuities which offer non-taxable returns on investment and the annuitant’s interest income are included at a steady rate during the entire term of the annuity.
Previous Month-End (AUV): a dollar amount that reflects the previous months accumulated unit value price.
Primary Beneficiary: the beneficiary named as first in line to receive payments or benefits from a policy when they become available.
Provisions: Statements contained in an insurance policy which provides stipulations and qualifications pertaining to the benefits, conditions and other features of the insurance contract.
Principal: the total amount of money that an annuity contract owner has put into the annuity, excluding earned interest.
Private Annuity: a personal or restricted annuity contract entered into by two people who are not in the business of selling annuities and who agree to exchange a valuable asset for payment of income for the duration of life.
Prospectus: a written document that must be provided under federal regulations to the prospective buyer of a variable annuity before the actual sale that describes the fund’s objectives, history, investment goals, financial statements, fees, etc.
Qualified Annuities: qualified annuities are annuities purchased for funding an IRa, 403(b) tax-deferred annuity, or other type of retirement arrangements, generally with paid premiums reducing current income tax and the use of tax-deferred accumulations.
Qualified Retirement Plan: generally any plan or arrangement eligible for special federal income tax treatment. Rated: Coverage issued at a higher rate than standard because of a health condition or impairment of the insured.
Ratchet Annuity: an annuity in which that annuitant is better able to capitalize on market gains while protecting the principal during market declines.
Renewable Term: term insurance that may be renewed for another term without evidence of insurability, usually with increasing premiums.
Replacement: a new policy written to take the place of one currently in use.
Revocable Beneficiary: a beneficiary in a life insurance policy in which the owner, as in most cases, reserves the right to revoke or change the beneficiary.
Renewal Rate: the new rate of interest credited to an annuity after the current interest-rate period is over, typically on the anniversary of the contract, which can be higher or lower than the current rate depending on various economic and/or investment factors.
Retirement Annuities: a broad term applying to many different types of investment vehicles and annuities, but generally referring to individual pension plans.
Retirement Plan Withholding: a 20% withholding for federal income taxes from an annuity distribution to an employee from an employer-sponsored retirement plan.
Reverse Annuity Mortgage: an arrangement in which a homeowner borrows against the equity in his/her home and receives regular monthly tax-free payments from the lender until the homeowner dies or goes into care and the house can be sold to repay the debt.
Risk-Return Trade-Off: a way of comparing the risks and returns of a potential investment by considering the age of the investor and the time frame for the investment with higher risks generating greater returns.
Rollovers: a distribution from a qualified retirement plan or Section 403(b) to an individual and then from the individual to another qualified retirement plan, Section 403(b), or IRA that maintains a tax-deferred status.
Roth Conversion: the rollover of funds from a traditional IRA to a Roth IRA if certain requirements are met, where the taxable amount of the rollover funds will be included in the gross income for the year in which the conversion is made.
Roth IRA: : a special type of IRA under which distributions may be tax exempt and nondeductible contributions can be made if certain income requirements are met.
Securities: returnable, negotiable instruments representing financial value, often categorized as debt securities and equity securities.
Settlement Option: Methods by which the insurer may pay annuity or life insurance policy proceeds to the annuitant, contract owner, policy owner or beneficiary.
Simplified Employee Pension (SEP): a written arrangement or program that allows an employer to contribute tax-deductible dollars toward an employee’s retirement.
Single Life Annuity: an annuity plan in which the periodic payments are made to the annuity contract owner for life, but end upon the owner’s death.
Single Premium Deferred (SPDA): an annuity that may be bought into once and whose payouts are withheld, compounding interest, and where future investments require a new annuity purchase.
Single Premium Immediate Annuity (SPIA): an annuity that may be bought into once and yields periodic payouts at the cost of compounded interest, where future investments require a new annuity purchase.
Single Premium: an annuity, often a fixed-rate annuity, into which funds cannot be deposited after the initial investment.
Single-Employer Plan: type of pension plan that is sponsored by one employer or a group of employers under a common control structure and also may not be collectively bargained.
Source of Funds: the location an individual plans to get money to invest such as 401(k) accounts, IRas, etc.
Split Annuities: an investment vehicle combining single premium deferred annuities and single premium immediate annuities in order to allow one annuity to grow on a fixed interest basis while the other begins immediate income payments.
Standard & Poor’s Rating (S&P): a letter-grade rating system which analyzes and rates insurance companies’ financial strengths in part on their ability to meet their contractual obligations to policyholders.
Standard Deviation (3-year): a statistical measure of a sub-account’s range of performance that has a greater chance of fluctuation when an annuities sub-account has a high degree of deviation.
Standard Risk: an average risk that is on a par with those upon which therate has been based in the areas of health, physical condition and morals.
Stock Purchase Agreement: a formal buy-sell agreement, usually funded by life insurance, whereby each stockholder is bound by the agreement to purchase the shares of a deceased stockholder and the heirs are obligated to sell.
Stock Redemption Agreement: a formal buy-sell agreement, usually funded by life insurance, whereby the corporation is bound by the agreement to purchase the shares of a deceased stockholder and the heirs are obliged to sell.
Standard Termination: the termination of a plan that holds assets sufficient to pay all benefits.
Straight Life Annuity: an annuity plan paying a specified amount over a set period of time until the death of the annuitant where no payouts are available to survivors after the contract owner dies. Sub-account Investment Objective: Identifies a sub-account’s investment type.
Sub-Account Net Assets: the assets of a sub-account expressed in millions of dollars.
Sub-Account: the various investment portfolios in which an individual decides where and how much of the annuity funds to invest.
Substandard Health Annuity: type of straight-life annuity designed for individuals who have serious health problems.
Surrender Charge: penalty imposed by the insurer, which decreases over time, but is implemented if the contract owner terminates the annuity by withdrawing all funds before the date agreed upon in the contract.
Surrender Penalty: a fee charged to a deferred annuity account for excessive or multiple withdrawals that exceed the limits imposed by the annuity contract
Surrender Value: the amount of money received by a contract owner if the annuity is surrendered and all cash is taken out of it.
Surviving Spouse: the living spouse, or in some circumstances, a former spouse of a deceased plan participant.
Tax Deferred Annuities: a contract for people who want to save on a tax-deferred basis for many years, and then convert to a payout schedule upon retirement.
Tax Incentives: various tax benefits received based on investment instruments.
Tax Sheltered Annuities: a tax-deferred retirement savings plan for teachers and some non-profit agency employees where contributors, employees and employers may invest a portion of their income, pre-tax, in annuities or mutual funds.
Tax-Deductible: an amount of money deducted from the adjusted gross income of a taxpayer in order to calculate the total taxable income.
Tax-Deferral: earnings from an annuity are not taxed until they are withdrawn from the plan.
Tax-Free Transfers: an activity whereby owners of variable annuity contracts may move assets from one sub-account to another while maintaining tax deferment on these funds.
Temporary Annuity: an annuity that is set to expire after the passing of a pre-established period of time.
Term Certain Annuity: an annuity plan in which predefined income payments are provided over a pre-determined number of years.
Term Insurance: life insurance that provides protection for a specified period of time and tends to have no real cash build up.
Three-Month Total Return: a percentage figure that reflects the annuity sub-account’s previous 3-month return.
Top-Heavy Plan: retirement plan in which employees identified as “key” receive 60 percent or more of the benefits of the plan and are subject to additional regulation.
Trading: the transferring of funds from one sub-account to another within an annuity while maintaining tax deferment.
Transfer: the direct transfer of funds from one financial institution to another financial institution for the benefit on an individual.
Treasuries: all of the federal government’s negotiable securities.
Trustee: the individual or organization who receives, holds, manages and distributes assets for another individual.
Two-Tier Annuity: an annuity that is designed to have a high interest rate, compared to the market, during its first year, based on the assumption that the owner of the annuity contract will remain in the plan through the annuitization period.
Underlying Portfolios: the stocks, bonds, cash equivalents or other investments purchased with the money you invest in an annuity.
Underwriter: a technician trained in evaluating risks and determining rates and coverage for the individual based on the determined risks.
Universal Life: a type of insurance whereby the payments of the insured are placed in an investment fund, earnings from the investment fund pay the premium on term life insurance and any remaining earnings increase the policy’s value.
Uniform Gifts to Minors Act / Uniform Transfers to Minors Act (UGMA) / (UTMA) : legislation in some states which allows gifting to a minor, usually providing tax benefits for the minor.
Unsecured Loan: a loan that is made on the basis of good credit and the borrower’s promise to repay the funds rather than by securing the loan through collateral.
Variable Annuity: an annuity contract that allows the owner to allocate the premium amount among sub-accounts. the contract value of such a plan may vary according to the performance of these investments as there is no set interest rate or earnings.
Vesting: an employee’s gaining of the right to be paid a current or future benefit from a pension plan.
Waiver of Premium: a provision of a life insurance policy which continues coverage without further premium payments upon the insured becoming entirely disabled.
Whole Life Insurance: life insurance which is kept for a person’s whole life, building up cash value and is guaranteed, as long as the scheduled premiums are maintained.
Withdrawal Charge: penalty, which typically phases out over time, imposed by the insurer if the contract owner cashes out part of the annuity prematurely.
Yield on Invested Assets: the amount of profit obtained on a capital investment or the income portion of a security’s return.
Jack Fleming – Insurance Broker
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