Our annuity glossary defines the key terms you will encounter when shopping for fixed annuities, MYGAs, and other retirement products. Each entry provides a clear, jargon-free explanation written for real buyers, not textbooks.
A
Accumulation Period
The phase of an annuity contract during which your money is growing through credited interest, before you begin taking withdrawals or annuitize.
Annuitization
The process of converting an annuity’s accumulated value into a stream of guaranteed income payments, typically monthly, for a set period or for life.
Annuitant
The person whose life expectancy is used to calculate annuity payments. Often the same person as the contract owner, but not always.
B
Bailout Provision
A contract feature that lets you withdraw without surrender charges if the insurer’s renewal rate drops below a specified threshold.
Beneficiary
The person or entity you designate to receive the annuity’s death benefit when the owner or annuitant dies.
C
Cost Basis
The amount of after-tax money you invested in a non-qualified annuity. Only the growth above your cost basis is taxable when you withdraw.
Credited Rate
The interest rate an insurance company applies to your annuity contract. For MYGAs, this rate is guaranteed for the full contract term.
D
Death Benefit
The amount paid to your beneficiary when the annuity owner or annuitant dies. For most fixed annuities, this equals the full account value including all accumulated interest.
E
Exclusion Ratio
A formula that determines how much of each annuitized income payment is tax-free (return of premium) versus taxable (gain).
F
Fixed Annuity
An insurance product that guarantees a set interest rate for a defined period, with principal protection and tax-deferred growth.
Fixed Index Annuity (FIA)
An annuity that credits interest based on the performance of a market index (like the S&P 500) with a floor that protects against losses.
Free Look Period
A window of 10-30 days (varies by state) after purchase during which you can cancel the annuity and receive a full refund.
Free Withdrawal
The amount you can take from an annuity each year without triggering surrender charges, typically 5-10% of the account value after year one.
G
General Account
The investment pool where an insurer invests fixed annuity premiums. Your guarantee is backed by the insurer’s general account assets.
Guaranteed Minimum Interest Rate (GMIR)
The lowest rate an insurer is contractually required to credit to your annuity, regardless of market conditions. Acts as a floor.
M
Market Value Adjustment (MVA)
A contract provision that adjusts the amount you receive on early withdrawal based on how interest rates have moved since you purchased the annuity.
MYGA (Multi-Year Guaranteed Annuity)
A type of fixed annuity that locks in a guaranteed interest rate for a set number of years, typically 3 to 10. The most commonly compared annuity product.
N
New Money Rate
The interest rate an insurer offers to new customers today. Almost always higher than the renewal rate offered to existing policyholders at maturity.
Non-Qualified Annuity
An annuity purchased with after-tax dollars. No contribution limits, no RMDs, and only the gains are taxable on withdrawal.
Nursing Home Waiver
A contract provision allowing penalty-free withdrawal of the full account value if you are confined to a nursing home or long-term care facility.
P
Premium
The lump-sum payment you make to purchase an annuity. Minimums vary by product, typically from $2,500 to $100,000.
Q
Qualified Annuity
An annuity held inside a tax-advantaged account (IRA, 401k rollover). The entire balance is taxable on withdrawal and subject to RMDs at age 73.
Qualified Longevity Annuity Contract (QLAC)
A type of deferred income annuity purchased within an IRA that allows you to defer RMDs on the amount used to fund the QLAC until payments begin (up to age 85).
R
Required Minimum Distribution (RMD)
The minimum annual withdrawal the IRS requires from qualified retirement accounts starting at age 73.
Rider
An optional add-on feature attached to an annuity contract (income rider, death benefit rider, LTC rider). Most MYGAs do not use riders.
S
Single Premium Immediate Annuity (SPIA)
An annuity that begins paying income immediately (or within one year) after a single lump-sum premium payment.
State Guaranty Association
A state-run safety net that protects annuity owners if an insurer becomes insolvent. Coverage limits are typically $250,000-$500,000 per contract.
Surrender Charge
A penalty charged for withdrawing more than the free withdrawal allowance during the surrender period. Typically declines each year until reaching 0%.
Surrender Period
The length of time during which early full withdrawals trigger surrender charges. For MYGAs, this usually matches the rate guarantee term.
T
Tax Deferral
The ability to postpone taxes on annuity earnings until withdrawal. Allows your money to compound on the full pre-tax amount.
Terminal Illness Waiver
A contract provision that waives all surrender charges if the owner is diagnosed with a terminal illness, providing full penalty-free access.
1035 Exchange
A tax-free transfer of funds from one annuity to another. The standard way to reinvest maturing annuity funds without triggering taxes.
V
Variable Annuity
An annuity where returns are tied to the performance of underlying investment subaccounts. Principal is not guaranteed.
