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.
AM Best Rating
A financial strength rating from A.M. Best measuring an insurer’s ability to pay what it owes. The most widely cited rating for annuity carriers.
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.
Annuity Due
A series of equal payments made at the beginning of each period. The earlier timing makes it worth slightly more than an ordinary annuity.
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.
Best Interest Standard
An NAIC rule requiring an agent to recommend what is best for you, not merely what is suitable. Adopted in 2020 and now in force in most states.
C
Cap Rate
The maximum interest a fixed index annuity will credit in a crediting period, no matter how far the underlying index rises.
Carrier (Insurer)
The insurance company that issues your contract and stands behind every guarantee in it.
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.
Cost-of-Living Adjustment (COLA)
An annual increase to annuity income payments designed to offset inflation, usually a fixed 1% to 3% or a link to the Consumer Price Index.
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.
Deferred Income Annuity (DIA)
A contract that converts a premium paid today into guaranteed income starting 5 to 30 years later.
Discount Rate
The interest rate used to convert future dollars into today’s dollars. It is the engine behind present value and moves with prevailing rates.
E
Exclusion Ratio
A formula that determines how much of each annuitized income payment is tax-free (return of premium) versus taxable (gain).
F
Fiduciary
A person or firm legally required to act in your best interest at all times, a higher duty than suitability.
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.
Flexible Premium
A contract that accepts additional deposits after issue, unlike a single premium contract that locks at funding.
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.
Future Value of an Annuity
The total amount a series of equal payments will grow into by a set date, including all the compound interest earned along the way.
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.
I
Income Rider (GLWB / GMWB)
An optional feature that guarantees lifetime withdrawals regardless of how the account value performs.
J
Joint and Survivor Annuity
A payout that continues as long as either of two annuitants is alive, often at a reduced level after the first death.
L
Life with Period Certain
A payout that lasts for the annuitant’s lifetime and guarantees a minimum number of years of payments to a beneficiary.
Lifetime Income Benefit
The guarantee that an annuity keeps paying for as long as you live, through annuitization or a lifetime withdrawal rider.
Liquidity Rider
An optional feature that raises penalty-free access above the standard 5% to 10% annual free withdrawal.
Long-Term Care Rider (LTC Rider)
An optional feature that multiplies your withdrawal amount, often two or three times, if you cannot perform a set number of daily living activities.
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.
Maturity Date
The end of the surrender period, when the contract reaches full term and surrender charges fall to zero.
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.
Mortality Credits
The extra income longer-living annuity owners effectively receive from the pool. It is why lifetime income annuities can out-pay a bond portfolio.
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.
O
Ordinary Annuity
A series of equal payments made at the end of each period. It is the standard timing assumption in most annuity and bond calculations.
P
Period Certain
A guarantee that payments continue for a set number of years even if the annuitant dies first.
Premium
The lump-sum payment you make to purchase an annuity. Minimums vary by product, typically from $2,500 to $100,000.
Present Value
What a future sum of money is worth today, after accounting for the interest it could earn in the meantime. The math behind annuity pricing.
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
Refund Annuity
A payout guaranteeing that total payments will at least equal the premium, refunding any unpaid balance to a beneficiary.
Replacement (Annuity)
Funding a new annuity by surrendering or drawing on an existing contract. Heavily regulated, because it can be done for the wrong reasons.
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.
Roll-Up Rate
The guaranteed annual growth applied to an income rider benefit base during deferral. It does not grow the account value.
Roth Annuity
An annuity held inside a Roth IRA, so growth and qualified withdrawals come out tax free.
S
Single Life Annuity
A payout covering one lifetime only. It produces the highest income because the carrier is insuring a single life.
Single Premium
A contract funded with one lump sum at issue, with no further deposits permitted.
Single Premium Immediate Annuity (SPIA)
An annuity that begins paying income immediately (or within one year) after a single lump-sum premium payment.
Spread (Annuity)
A fixed percentage subtracted from the index gain before interest is credited to a fixed index annuity.
State Guaranty Association
A state-mandated nonprofit that pays annuity owners if a member insurer becomes insolvent. Limits vary by state; see our state guaranty association coverage limits.
Step-Up (Death Benefit)
A death benefit feature that locks in account value gains, so heirs receive at least the highest value the contract reached.
Suitability
The regulatory standard requiring a recommendation to match your financial situation, needs, and objectives.
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.
Time Value of Money
The principle that a dollar today is worth more than a dollar in the future, because money you hold now can be invested and earn interest.
V
Variable Annuity
An annuity where returns are tied to the performance of underlying investment subaccounts. Principal is not guaranteed.
