Annuity Glossary A to Z

0% floor

The 0% floor guarantees that index-linked interest for any crediting term is never less than zero, so a falling index cannot reduce your account value.

Full entry: Fixed index annuities

100% joint and survivor

See Joint and survivor on Immediate annuities (SPIA).

1035 exchange

A 1035 exchange is a direct, carrier-to-carrier transfer of a non-qualified annuity (or life policy) into a new annuity under Internal Revenue Code section 1035, with no tax on the gain and the original cost basis carried over.

Full entry: Annuity taxes

1035 vs surrender and rebuy

Surrendering a non-qualified annuity and buying a new one with the cash taxes all the gain in the year of surrender; a 1035 exchange of the same money defers it. The exchange is almost always the better route when there is gain in the contract.

Full entry: Annuity taxes

10% additional tax before 59½

The 10% additional tax is a federal tax, on top of ordinary income tax, applied to the taxable part of any annuity distribution taken before age 59½ unless an exception applies.

Full entry: Annuity taxes

10% penalty

See 10% additional tax before 59½ on Annuity taxes.

50% joint and survivor

See Joint and survivor with reduction on Immediate annuities (SPIA).

60-day rollover

A 60-day rollover is an IRA or plan distribution paid to you that you redeposit into an IRA within 60 days; done correctly it is tax-free, but it is limited to one IRA-to-IRA rollover in any 12-month period and carries withholding and deadline risk.

Full entry: Annuity taxes

72(q) exceptions

The 72(q) exceptions are the situations in which a distribution from a non-qualified annuity before 59½ escapes the 10% additional tax, including death, disability, substantially equal periodic payments and immediate annuities.

Full entry: Annuity taxes

72(t) substantially equal payments

Substantially equal periodic payments (SEPP) are a fixed schedule of withdrawals, calculated under IRS methods and based on your life expectancy, that avoid the 10% additional tax from an IRA or employer plan under 72(t) or from a non-qualified annuity under 72(q).

Full entry: Annuity taxes

75% joint and survivor

See Joint and survivor with reduction on Immediate annuities (SPIA).

Account value

Account value, also called accumulation value or contract value, is your premium plus credited interest minus withdrawals and fees; it is the real money in the contract.

Full entry: Annuity fundamentals

Account value reaches zero

When guaranteed income payments and fees exhaust the account value, the carrier continues paying the same lifetime income amount from its own funds until the covered person or persons die; nothing further is paid at death.

Full entry: Income riders

Accumulation FIA

An accumulation FIA is designed to grow account value, with the highest caps and participation rates the carrier can offer and no income rider attached.

Full entry: Fixed index annuities

Accumulation phase

The accumulation phase is the period when your premium sits in the contract and earns interest, before any income payments begin.

Full entry: Annuity fundamentals

Actuarial Guideline 49-A

See AG 49-A illustration limits on Fixed index annuities.

Actuarial present value rule

The actuarial present value rule requires the value of a deferred annuity in an IRA, for RMD purposes, to include not just the account value but the actuarial present value of additional benefits such as income rider guarantees and enhanced death benefits.

Full entry: Annuity taxes

Address change

An address change is a servicing request to update the owner’s mailing address on the contract so statements, tax forms, renewal notices and checks reach you; it is simple to do and expensive to skip.

Full entry: Buying and owning

Administrative fee

The administrative fee covers the insurer’s cost of recordkeeping and servicing the contract, charged either as a flat annual amount, commonly $25 to $30, or as a small percentage of account value, often 0.10% to 0.25%.

Full entry: RILAs and variable annuities

After the basis is recovered

Once the tax-free portions of your payments add up to your full cost basis, every later payment is 100% taxable; if you die before recovering your basis, the unrecovered amount is deductible on your final income tax return.

Full entry: Annuity taxes

AG 49

See AG 49-A illustration limits on Fixed index annuities.

AG 49-A illustration limits

Actuarial Guideline 49-A is an NAIC guideline that limits illustrated crediting rates on indexed universal life insurance; fixed index annuity illustrations are instead governed by the NAIC Annuity Disclosure Model Regulation (#245).

Full entry: Fixed index annuities

Age bands

Age bands are the rows of the payout table that assign a higher payout percentage to older starting ages, in steps of one year or five years, because the carrier expects to pay for fewer years.

Full entry: Income riders

Agent vs broker vs advisor

An agent is licensed by the state to sell insurance; a broker or independent agent can place business with many carriers; an investment adviser is registered to give securities advice for a fee and may or may not also hold an insurance license.

Full entry: Annuity fundamentals

Aggregation rule

The aggregation rule treats all non-qualified deferred annuity contracts issued by the same carrier to the same owner in the same calendar year as one contract when calculating the taxable part of a withdrawal.

Full entry: Annuity taxes

Allocation

Allocation is the percentage split of your account value across the contract’s crediting strategies and fixed account, chosen at issue and adjustable at each anniversary.

Full entry: Fixed index annuities

AM Best

AM Best is a rating agency that specializes in insurance and publishes a Financial Strength Rating on a scale from A++ at the top down to D, expressing its opinion of a carrier’s ability to meet its obligations to policyholders.

Full entry: Carrier strength and ratings

Anniversary review

An anniversary review is a short yearly check, around the contract anniversary, of the renewal rate or caps, your allocations, your free withdrawal amount, your beneficiaries and whether the contract still fits; it is the one date a year when most contracts let you change something.

Full entry: Buying and owning

Annual compounding

Annual compounding means each year’s interest is added to the account value and earns interest itself in later years; most fixed annuities credit this way.

Full entry: Fixed annuities and MYGAs

Annual point-to-point

Annual point-to-point compares the index value on your contract anniversary to its value one year earlier, ignoring everything in between, and applies the cap, participation rate or spread to that change.

Full entry: Fixed index annuities

Annual statement

The annual statement is the carrier’s yearly report on your contract showing the account value, interest or index credits, withdrawals, fees, the current surrender value, and the rates or caps in effect for the coming year.

Full entry: Buying and owning

Annuitant

The annuitant is the person whose age and life expectancy are used to calculate payments and, on many contracts, whose death triggers the death benefit.

Full entry: Annuity fundamentals

Annuities in divorce

An annuity transferred between spouses or former spouses incident to divorce is not taxed at the transfer under section 1041 and the 72(e)(4)(C) spousal exception; the receiving spouse takes over the basis and pays tax only when money comes out.

Full entry: Annuity taxes

Annuitization

Annuitization is the irrevocable exchange of your contract’s value for a guaranteed series of payments, for a set period, for life, or both.

Full entry: Annuity fundamentals

Annuitizing qualified money

Payments from an annuitized traditional IRA or pre-tax employer plan are fully taxable as ordinary income, because there is no after-tax basis to exclude; the payments also satisfy the RMD for that contract.

Full entry: Annuity taxes

Annuitizing within one year

Under section 72(s)(2), a non-spouse beneficiary can take a non-qualified annuity as payments over their own life or life expectancy instead of within five years, provided the payments begin within one year of the owner’s death.

Full entry: Annuity taxes

Annuity

An annuity is a contract with an insurance company that, in exchange for a premium, guarantees interest, income or both, backed by the carrier’s general account.

Full entry: Annuity fundamentals

Annuity inside a 401(k)

An annuity held inside a 401(k) or other employer plan is taxed under the plan’s rules: pre-tax contributions and growth are fully taxable when paid, RMDs follow the plan’s required beginning date, and the contract can usually be rolled to an IRA when you leave.

Full entry: Annuity taxes

Annuity inside an IRA

An annuity can be held inside an IRA or rolled over from a 401(k); the IRA already provides tax deferral, so the reason to do it is the guarantee, not the tax treatment.

Full entry: Annuity fundamentals

Annuity to LTC policy

A non-qualified annuity can be exchanged tax-free, in whole or in part, for a qualified long-term care insurance contract under section 1035(a)(3), turning taxable annuity gain into premiums for care coverage whose benefits are generally tax-free.

Full entry: Annuity taxes

Annuity vs bond ladder

A bond ladder and a fixed annuity both produce predictable interest over a term; the ladder keeps you in control of the assets, the annuity adds principal guarantees, tax deferral and, if wanted, lifetime income.

Full entry: Annuity fundamentals

Annuity vs CD

A fixed annuity and a CD both pay a stated rate for a stated term; the annuity defers taxes and usually pays more, while the CD is FDIC-insured and more liquid.

Full entry: Annuity fundamentals

Application

The application is the carrier’s form requesting the contract, naming the owner, annuitant and beneficiaries, stating the premium and its source, choosing the plan type and any options, and answering replacement questions; the contract is issued on the facts you give here.

Full entry: Buying and owning

asset fee

See Spread on Fixed index annuities.

Assignment

An assignment transfers some or all of the owner’s rights in the contract to another party; an absolute assignment is a change of owner, a collateral assignment is a pledge.

Full entry: Contract provisions and waivers

Automatic renewal

Automatic renewal is the default on most MYGAs: if you give no instruction during the renewal window, the contract renews for a new term at the carrier’s declared rate, often with a new surrender schedule.

Full entry: Fixed annuities and MYGAs

Back-tested index data

Back-tested index data is a simulated history showing how an index would have performed under its current rules before it actually existed; it is hypothetical and tends to look better than live results.

Full entry: Fixed index annuities

Base rate vs bonus rate

The base rate is the contract’s underlying guaranteed rate; the bonus rate is the base rate plus a one-time first-year addition that disappears after year one.

Full entry: Fixed annuities and MYGAs

basis

See Cost basis on Annuity taxes.

Basis carryover

No. In a 1035 exchange the cost basis of the old contract becomes the cost basis of the new one, so the untaxed gain travels with the money and remains taxable when it eventually comes out.

Full entry: Annuity taxes

Beneficiary

The beneficiary is the person or entity named to receive the death benefit, outside of probate.

Full entry: Annuity fundamentals

Beneficiary update

A beneficiary update is the owner’s signed request to the carrier naming new primary or contingent beneficiaries and their percentages; it takes effect when the carrier records it, and it overrides anything your will says about the contract.

Full entry: Buying and owning

Benefit base

The benefit base is a bookkeeping value used only to calculate your lifetime income; it is not cash, cannot be withdrawn or surrendered, and is not paid to beneficiaries.

Full entry: Income riders

Benefit base bonus

A benefit base bonus is a percentage added to the benefit base at issue, often 5% to 20%, that increases future income but is never added to your account value.

Full entry: Income riders

Benefit base vs account value

The account value is your money and moves with interest credits, fees and withdrawals; the benefit base is the rider’s income calculation figure and moves only by the rider’s own rules.

Full entry: Income riders

Best interest standard

The best interest standard requires an agent recommending an annuity to act in the consumer’s interest without placing their own financial interest ahead of it, through specific care, disclosure, conflict-of-interest and documentation obligations; it comes from the 2020 revision of the NAIC Suitability in Annuity Transactions Model Regulation (#275) and has been adopted by most states.

Full entry: Buying and owning

Bonus fixed annuity

A bonus fixed annuity adds either a one-time credit to the account value at issue, often 1% to 3% of premium, or an extra first-year interest rate, in exchange for a longer surrender period, a lower ongoing rate, or both.

Full entry: Fixed annuities and MYGAs

Bonus recapture

Bonus recapture is a provision that deducts some or all of a premium bonus on withdrawals above the free amount or on surrender during the surrender period, separate from and in addition to the surrender charge.

Full entry: Fixed index annuities

Bonus vesting

Bonus vesting is a schedule under which the premium bonus becomes yours gradually, often 10% a year over ten years, so an early surrender forfeits the unvested portion.

Full entry: Fixed index annuities

Buffer

A buffer is the first slice of an index loss, typically 10%, 15% or 20%, that the carrier absorbs; you lose only the part of the decline that exceeds the buffer.

Full entry: RILAs and variable annuities

buffered annuity

See RILA on RILAs and variable annuities.

Built-in income

Built-in income is a lifetime withdrawal guarantee included in the base contract with no stated rider fee; the cost is taken through lower caps and participation rates instead.

Full entry: Income riders

Buyer’s guide

The Buyer’s Guide is a short consumer booklet published by the NAIC that explains how a type of annuity works in general terms; most states require the agent to deliver it at or before you apply, and you sign to acknowledge receiving it.

Full entry: Buying and owning

Capital

Capital, in the way MAS uses the word, is the cushion a carrier holds above its obligations, measured by statutory surplus, the risk-based capital ratio and how both have moved against the carrier’s growth.

Full entry: Carrier strength and ratings

Cap rate

The cap rate is the maximum interest you can be credited for the term, no matter how far the index rises.

Full entry: Fixed index annuities

Carrier online portal

The carrier online portal is the insurer’s secure website or app where an owner can view values and statements, download tax forms, update contact details and, on many contracts, submit reallocations and withdrawals without paper.

Full entry: Buying and owning

Carrier ownership

Carrier ownership, as MAS weighs it, is the question of who controls the insurer, how long they have owned it, what they have done with its balance sheet, and how likely it is to change hands again during your contract.

Full entry: Carrier strength and ratings

CD-type annuity

A CD-type annuity is a MYGA whose surrender charge period exactly matches its rate guarantee period, so there is never a year with a surrender charge and no guaranteed rate.

Full entry: Fixed annuities and MYGAs

Change of beneficiary

A change of beneficiary is a written election, on the carrier’s form, that replaces the current beneficiary designations; it takes effect when the carrier records it.

Full entry: Contract provisions and waivers

Change of owner

A change of owner transfers all contract rights to a new owner by carrier form; on a non-qualified contract it is usually a taxable event unless the new owner is a spouse.

Full entry: Contract provisions and waivers

Changing allocations

Changing allocations is the owner’s instruction, usually allowed only at the contract anniversary, to redistribute the account value among an FIA’s index strategies and fixed account for the coming crediting term.

Full entry: Buying and owning

Choosing a payout option

Choosing a payout option means deciding how much income to give up today in exchange for protection for a spouse or heirs; the option sets what continues at death and, in direct proportion, the size of every payment.

Full entry: Immediate annuities (SPIA)

Chronic illness waiver

A chronic illness waiver removes surrender charges if you cannot perform a stated number of activities of daily living, usually two of six, or have severe cognitive impairment, as certified by a physician.

Full entry: Contract provisions and waivers

COLA rider

See Cost-of-living increase rider on Immediate annuities (SPIA).

Collateral assignment

A collateral assignment pledges the contract to a lender as security; the lender’s rights come first until the loan is repaid, and on a non-qualified contract the pledge is treated as a taxable distribution.

Full entry: Contract provisions and waivers

Comdex

See Comdex score on Carrier strength and ratings.

Comdex score

A Comdex score is a composite percentile ranking from 1 to 100, produced by a third-party data service, that averages a carrier’s ratings from the major agencies and shows where it ranks against all other rated insurers.

Full entry: Carrier strength and ratings

Commission

A commission is the one-time payment the carrier makes to the selling agent when a contract is issued; on fixed and fixed index annuities it is paid from the carrier’s own margin, not deducted from your premium, so your day-one account value equals what you deposited.

Full entry: Buying and owning

Commutation

Commutation is the right, on some SPIA contracts, to exchange some or all of the remaining guaranteed payments for a discounted lump sum; it usually applies only to the period certain or refund portion, not to the lifetime portion.

Full entry: Immediate annuities (SPIA)

Comparing quotes like for like

Comparing like for like means lining up two quotes on the same term, the same premium band, the same liquidity features and comparable carrier strength, so the only thing left to compare is what the contract pays.

Full entry: Buying and owning

Complaint to the carrier

A complaint to the carrier is a written statement to the insurer’s complaint or consumer affairs unit describing what went wrong and what you want done; it is the required first step, it creates a record, and carriers must track and respond to it under state rules.

Full entry: Buying and owning

Compounding vs taking interest

Compounding leaves interest in the contract to earn more interest and defers tax; taking interest produces current income, stops growth on what is withdrawn, and is taxed as received.

Full entry: Fixed annuities and MYGAs

Confinement income multiplier

A confinement income multiplier, often called an income doubler, temporarily increases the lifetime income amount, usually to double, when the covered person is confined to a nursing home or cannot perform two or more activities of daily living, for a limited period and only while the account value is above zero.

Full entry: Income riders

Contingent beneficiary

A contingent beneficiary receives the death benefit only if no primary beneficiary is alive at the owner’s death.

Full entry: Annuity fundamentals

Contract anniversary

The contract anniversary is the yearly date matching the issue date, when interest is credited, index gains are measured, fees are deducted and allocation changes take effect.

Full entry: Annuity fundamentals

Contract year

A contract year runs twelve months from the issue date, not the calendar year; surrender charges, free withdrawals and crediting terms are all measured in contract years.

Full entry: Annuity fundamentals

Cost basis

Cost basis, called investment in the contract by the IRS, is the total after-tax money you put into a non-qualified annuity, less any tax-free amounts already taken out; it comes back to you free of income tax.

Full entry: Annuity taxes

Cost-of-living increase rider

A cost-of-living increase (COLA) rider raises the SPIA payment by a fixed percentage, commonly 1% to 5%, every year; in exchange, the starting payment is materially lower than a level payment on the same premium.

Full entry: Immediate annuities (SPIA)

CPI-linked payments

CPI-linked payments adjust the SPIA payment each year by the change in the Consumer Price Index, so the income rises with measured inflation rather than by a fixed percentage.

Full entry: Immediate annuities (SPIA)

Crediting term

The crediting term, or segment term, is the period over which index change is measured and at the end of which interest is credited and locked in, commonly one year, sometimes two or more.

Full entry: Fixed index annuities

Cumulative free withdrawals

Cumulative free withdrawals let unused free withdrawal allowance carry forward to later years, up to a stated maximum, instead of expiring each year.

Full entry: Contract provisions and waivers

Daily average

Daily average crediting uses the average of every trading day’s index value over the term instead of twelve monthly points; it behaves like monthly averaging with slightly more smoothing.

Full entry: Fixed index annuities

Death before or during income

At death, beneficiaries receive the account value under the contract’s death benefit, not the benefit base; if income has started and the account is exhausted, they receive nothing unless a spouse continues joint income.

Full entry: Income riders

Death benefit

The death benefit is the amount paid to the beneficiary at the death that triggers it, usually the full account value with no surrender charge.

Full entry: Annuity fundamentals

Death benefit payout options

Death benefit payout options are the ways a beneficiary can receive the proceeds: lump sum, payments over up to five years, annuitization over life expectancy, or, for a spouse, continuing the contract.

Full entry: Contract provisions and waivers

Death claim process

The death claim process is the set of documents a beneficiary submits to the carrier after the owner (or annuitant, on an annuitant-driven contract) dies, and the carrier’s payment of the death benefit under the payout option the beneficiary chooses; most carriers pay within one to three weeks of receiving a complete claim.

Full entry: Buying and owning

Deferral credit

A deferral credit raises the payout percentage, rather than the benefit base, for each year you wait to start income, typically by 0.10% to 0.50% per year of deferral.

Full entry: Income riders

Deferral period

The deferral period is the time between the date you pay the DIA premium and the date the first income payment is due; it is chosen at purchase and is usually fixed, though many contracts allow it to be moved once.

Full entry: Deferred income and QLAC

Deferred annuity

A deferred annuity is any annuity in which income, if ever taken, starts more than a year after purchase; the money accumulates first.

Full entry: Annuity fundamentals

Deferred income annuity

A deferred income annuity (DIA) is a contract in which you pay a premium now and the carrier guarantees a fixed income for life (or for a set period) starting on a future date you choose, anywhere from about 13 months to 40 years after purchase.

Full entry: Deferred income and QLAC

Delivery receipt

The delivery receipt is a one-page form you sign and date to confirm the day you received the contract; it is the carrier’s evidence of when the free-look period began and when it ends.

Full entry: Buying and owning

DIA

See Deferred income annuity on Deferred income and QLAC.

DIA vs SPIA ladder

A DIA locks in future income at today’s pricing with one irrevocable premium; a SPIA ladder keeps the money liquid and buys income in stages at whatever rates and ages apply when each purchase is made.

Full entry: Deferred income and QLAC

Disability waiver

A disability waiver removes surrender charges if the owner becomes totally disabled, as defined in the contract, after issue and usually before a stated age such as 65.

Full entry: Contract provisions and waivers

Disclosure documents

Disclosure documents are the carrier- and state-required papers delivered at or before the application that describe the specific contract’s rates, charges, riders and limitations in plain language; the most important is the product disclosure statement, which you sign to confirm you read it.

Full entry: Buying and owning

Divorce and an income rider

A divorce decree can divide the annuity’s account value, but the income rider usually cannot be split: the carrier either terminates joint coverage, continues the rider on one spouse’s portion, or treats the transferred amount as a withdrawal that reduces the benefit base.

Full entry: Income riders

Domicile state

The domicile state is the state in which an insurer is legally incorporated and whose insurance department serves as its primary regulator for solvency, examinations and any rehabilitation or liquidation.

Full entry: Carrier strength and ratings

Dual direction

A dual direction strategy credits the absolute value of the index change, up or down, within a stated range, so a 6% decline can credit a positive 6%; beyond the range the normal cap and floor apply.

Full entry: Fixed index annuities

Dual direction (RILA)

A dual-direction RILA credits a positive return equal to the size of an index loss, as long as the loss stays within the buffer; a decline larger than the buffer is a loss to you beyond the buffer, as usual.

Full entry: RILAs and variable annuities

E-application

An e-application is the same application completed and signed electronically, usually through the carrier or an agency platform with e-signature and identity verification; it rejects incomplete fields on the spot, which is why e-apps are issued faster than paper.

Full entry: Buying and owning

early withdrawal penalty

See 10% additional tax before 59½ on Annuity taxes.

EDB

See Eligible designated beneficiary on Annuity taxes.

Effective yield

Effective yield is the single annual rate that, compounded over the term, produces the same ending value as the contract’s actual mix of rates and bonuses.

Full entry: Fixed annuities and MYGAs

Eligible designated beneficiary

An eligible designated beneficiary (EDB) is a surviving spouse, the owner’s minor child, a disabled or chronically ill person, or anyone not more than 10 years younger than the owner; EDBs may take an inherited IRA over their own life expectancy instead of the 10-year rule.

Full entry: Annuity taxes

Enhanced death benefit rider

An enhanced death benefit rider, for an annual fee, pays the beneficiary a larger amount than the account value, often the benefit base or premium grown at a guaranteed rate, sometimes paid out over several years.

Full entry: Contract provisions and waivers

Estate tax inclusion

Yes. The date-of-death value of an annuity you own, or the value of survivor payments under a joint annuity you funded, is included in your gross estate for federal estate tax, under section 2033 for an un-annuitized deferred contract and section 2039 for an annuitized one, even though it passes by beneficiary designation outside probate.

Full entry: Annuity taxes

Excess withdrawal

An excess withdrawal is any amount taken in a contract year above the free withdrawal allowance; it is subject to the surrender charge and any MVA.

Full entry: Contract provisions and waivers

Excess withdrawals on an income rider

An excess withdrawal is any amount taken above the lifetime income amount in a contract year; it reduces the benefit base and future income in the same proportion it reduced the account value, and can terminate the rider if it drains the account.

Full entry: Income riders

Exclusion ratio

The exclusion ratio is the percentage of each annuity payment that is treated as a tax-free return of your cost basis; it equals your investment in the contract divided by the expected return, and the rest of each payment is taxable ordinary income.

Full entry: Annuity taxes

Expected return

Expected return is the total amount you and any other annuitant can expect to receive under the contract, calculated as the annual payment times the number of years in the IRS life expectancy table or the fixed period.

Full entry: Annuity taxes

Extended free look on replacements

Many states require a longer free look, commonly 15 to 30 days (60 in New York), when the new contract replaces an existing annuity or life policy, giving extra time to confirm the replacement makes sense.

Full entry: Contract provisions and waivers

Federal withholding elections

Federal income tax is withheld from annuity payments by default unless you elect otherwise; periodic payments are withheld like wages using Form W-4P, and one-time payments use a flat default rate you can change or waive on Form W-4R.

Full entry: Annuity taxes

Fee-based annuities

A fee-based annuity pays no commission to the seller; instead the firm placing it charges you an ongoing fee, typically a percentage of the account value, and the carrier offers a somewhat higher rate or cap because it has no commission to recover.

Full entry: Buying and owning

Fee-based strategies

A fee-based strategy charges an explicit annual fee, often about 1% of the allocated value, in exchange for a meaningfully higher cap or participation rate; the fee is charged whether or not any interest is credited.

Full entry: Fixed index annuities

Fee basis

The fee basis is the value the rider fee percentage is multiplied by, either the account value or the larger benefit base; a fee on the benefit base takes a bigger share of your actual money than the stated percentage suggests.

Full entry: Income riders

FIA

See Fixed index annuity on Fixed index annuities.

FIA vs index fund

An index fund gives you the full index return including dividends with full exposure to losses; an FIA gives you a capped share of the price index with no losses; they solve different problems and are not substitutes.

Full entry: Fixed index annuities

FIA vs MYGA

A MYGA pays a known rate for a known term; an FIA pays an unknown rate between 0% and its cap each year; over a full term the FIA may earn more or less, and the MYGA will earn exactly what it said.

Full entry: Fixed index annuities

FIA vs RILA

An FIA floors every term at 0% and limits upside with a cap or participation rate; a RILA accepts some index loss through a buffer or floor in exchange for a higher cap, and is a registered security.

Full entry: Fixed index annuities

field marketing organization

See IMO/FMO on Annuity fundamentals.

First payment date

The first payment date is the date of the first SPIA payment, chosen at application; it is typically one payment period after issue and can be set anywhere inside the income start window.

Full entry: Immediate annuities (SPIA)

First-year bonus

A first-year bonus is extra interest credited only in the first contract year, on top of the base rate, used to raise the headline number on a quote.

Full entry: Fixed annuities and MYGAs

First-year teaser rates

A first-year teaser rate is an unusually high initial cap or participation rate set to win the sale, with the expectation that renewals will be lower.

Full entry: Fixed index annuities

Fitch

Fitch Ratings publishes an Insurer Financial Strength Rating on a scale from AAA down to D, with plus and minus modifiers, similar in shape to S&P’s scale.

Full entry: Carrier strength and ratings

Five-year rule

The five-year rule under section 72(s)(1)(B) requires a non-qualified annuity’s entire value to be distributed within five years of the owner’s death when the beneficiary does not elect a life-expectancy payout; the money can stay deferred inside the contract until it is withdrawn.

Full entry: Annuity taxes

Fixed account

The fixed account is a strategy inside an FIA that credits a declared interest rate for the year, unrelated to any index, usually resettable each anniversary.

Full entry: Fixed index annuities

Fixed annuity

A fixed annuity is a contract in which the carrier credits a declared interest rate to your account value and guarantees your principal, with no link to any market index.

Full entry: Fixed annuities and MYGAs

Fixed index annuity

A fixed index annuity (FIA) is a fixed annuity whose interest is calculated from the change in a market index over a set term, credited at no less than 0% and limited by a cap, participation rate or spread.

Full entry: Fixed index annuities

fixed indexed annuity

See Fixed index annuity on Fixed index annuities.

Flexible premium

A flexible premium contract accepts additional deposits after issue, within limits set by the carrier.

Full entry: Annuity fundamentals

Flexible premium DIA

A flexible premium DIA accepts additional premiums after the first one, each buying its own slice of future income at the rate in effect when that payment is made, all starting on the same income date.

Full entry: Deferred income and QLAC

floor

See 0% floor on Fixed index annuities.

FMO

See IMO/FMO on Annuity fundamentals.

Form 1099-R

Form 1099-R is the IRS form a carrier issues for any distribution from an annuity, IRA or retirement plan; it reports the gross amount, the taxable amount and a code describing the type of payment.

Full entry: Annuity taxes

Free look period

The free look period is a window after you receive the contract, set by state law at 10 to 30 days, during which you can return it for a full refund of premium with no surrender charge.

Full entry: Contract provisions and waivers

Free withdrawal provision

The free withdrawal provision lets you withdraw a set portion of the contract each year, commonly 10% of account value, with no surrender charge or MVA.

Full entry: Contract provisions and waivers

Full surrender

A full surrender terminates the contract and pays the surrender value: account value less surrender charge, less or plus any MVA, never below the guaranteed minimum.

Full entry: Contract provisions and waivers

Fund expenses

Fund expenses are the annual operating costs of each subaccount, expressed as an expense ratio and deducted from the subaccount’s returns, charged in addition to the insurer’s M&E and administrative fees.

Full entry: RILAs and variable annuities

Funding

Funding is the step in which the premium reaches the carrier, by personal check, wire, a transfer from an IRA or retirement plan custodian, or a 1035 exchange from another insurance contract; the method sets the timeline and decides who has to sign what.

Full entry: Buying and owning

Gain

The gain is the contract’s cash value, measured before any surrender charge, minus your cost basis; it is the portion of any withdrawal that is taxable.

Full entry: Annuity taxes

Gains-first taxation

Gains-first (LIFO) taxation means withdrawals from a non-qualified deferred annuity are treated as coming from earnings first, fully taxable, and only after all gain is out do withdrawals become a tax-free return of basis.

Full entry: Annuity taxes

General account

The general account is the insurer’s own pool of invested assets, backed by all of its capital, from which it pays fixed annuity, MYGA and fixed index annuity obligations.

Full entry: Carrier strength and ratings

Gifting an annuity

Giving away a non-qualified annuity, or changing the owner to someone other than your spouse, is a taxable event: the owner is taxed on all gain in the contract at the time of the transfer, as if it had been surrendered, and the gift may also count against the gift tax exclusion.

Full entry: Annuity taxes

GLWB

GLWB stands for guaranteed lifetime withdrawal benefit, the contract name for the income rider most fixed index and variable annuities offer.

Full entry: Income riders

GMAB

A guaranteed minimum accumulation benefit (GMAB) is a variable annuity rider that promises your account value will be at least a stated amount, usually your premium, on a specific future date, typically ten years from purchase; if the account is below that amount on the date, the carrier adds the difference.

Full entry: RILAs and variable annuities

GMDB

A guaranteed minimum death benefit (GMDB) promises that your beneficiaries receive at least a stated amount at your death, often the premiums paid or the highest anniversary value, even if the subaccounts have fallen below it.

Full entry: RILAs and variable annuities

GMIB

A guaranteed minimum income benefit (GMIB) is a variable annuity rider that guarantees you can convert a protected benefit base into lifetime income at contract-stated rates after a waiting period, typically ten years, but only by annuitizing.

Full entry: RILAs and variable annuities

GMSV

See Guaranteed minimum surrender value on Annuity fundamentals.

GMWB

A guaranteed minimum withdrawal benefit (GMWB) is a variable annuity rider that lets you withdraw a stated percentage of a protected benefit base each year, often for life, even after the account value falls to zero; it is the variable annuity version of a lifetime income rider.

Full entry: RILAs and variable annuities

Guaranteed column

The guaranteed column shows contract values assuming the minimum guaranteed caps, rates and fees and the worst allowed index outcome; it is the only column the carrier is contractually bound to.

Full entry: Fixed index annuities

guaranteed lifetime withdrawal benefit

See GLWB on Income riders.

guaranteed minimum accumulation benefit

See GMAB on RILAs and variable annuities.

guaranteed minimum death benefit

See GMDB on RILAs and variable annuities.

guaranteed minimum income benefit

See GMIB on RILAs and variable annuities.

Guaranteed minimum surrender value

The guaranteed minimum surrender value is the lowest amount a contract may ever pay on surrender, set by state nonforfeiture law as a percentage of premium grown at a minimum rate.

Full entry: Annuity fundamentals

guaranteed minimum withdrawal benefit

See GMWB on RILAs and variable annuities.

Guaranteed rate

The guaranteed rate is the annual interest rate the contract promises to credit for the stated guarantee period; it cannot be lowered during that period for any reason.

Full entry: Fixed annuities and MYGAs

Guaranteed vs non-guaranteed elements

Guaranteed elements are fixed for the stated period by the contract; non-guaranteed elements, like renewal caps and rates, can be changed by the carrier within contract limits.

Full entry: Annuity fundamentals

Guarantee period

The guarantee period is the number of years the guaranteed rate applies; on a MYGA it normally equals the term and the surrender charge period.

Full entry: Fixed annuities and MYGAs

High-water mark

A high-water mark strategy measures the index change from the start of the term to its highest anniversary (or monthly) value during the term, rather than to the end value.

Full entry: Fixed index annuities

Historical lookback

A historical lookback applies the contract’s current crediting terms to the index’s actual past returns over defined periods to produce the illustration’s non-guaranteed values.

Full entry: Fixed index annuities

How annuities are sold

Annuities are sold only through a licensed insurance agent or broker appointed by the carrier; the same contract carries the same rate and terms no matter which channel sells it, but the range of carriers you are shown depends on the channel.

Full entry: Buying and owning

How carriers set fixed rates

Carriers set fixed annuity rates from the yield on the bonds they can buy with your premium, minus their expenses, capital costs and profit target, adjusted for how badly they want new business.

Full entry: Fixed annuities and MYGAs

Hybrid annuity-LTC

A hybrid annuity-LTC contract is a fixed or index annuity built around a long-term care benefit, leveraging the premium into a larger care pool while leaving the account value available if care is never needed.

Full entry: Contract provisions and waivers

Hybrid FIA

A hybrid FIA offers competitive crediting rates with an optional income rider, so it can be used for accumulation now and income later, usually with a middle-of-the-road result on both.

Full entry: Fixed index annuities

Illustrated rate

The illustrated rate is the non-guaranteed interest rate an FIA illustration assumes for future years, derived from applying today’s caps and participation rates to the index’s actual history under the NAIC illustration rules.

Full entry: Fixed index annuities

Illustration

An illustration is a carrier-produced projection of how a specific contract might perform, showing guaranteed values alongside non-guaranteed scenarios.

Full entry: Annuity fundamentals

Immediate annuity

An immediate annuity converts a single premium into payments that begin within one year of purchase, usually within a month.

Full entry: Annuity fundamentals

IMO

See IMO/FMO on Annuity fundamentals.

IMO/FMO

An IMO or FMO (independent or field marketing organization) is a wholesaler that sits between carriers and independent agents, handling contracting, training and case support.

Full entry: Annuity fundamentals

impaired risk annuity

See Medically underwritten SPIA on Immediate annuities (SPIA).

Income activation

Income activation is the written election that starts lifetime withdrawals, fixes your payout percentage from your age that day, and ends the roll-up on the benefit base.

Full entry: Income riders

income doubler

See Confinement income multiplier on Income riders.

Income FIA

An income FIA is built around a guaranteed lifetime income rider; its crediting rates are secondary and often lower, because the carrier’s pricing goes into the roll-up and payout guarantees.

Full entry: Fixed index annuities

Income in respect of a decedent

Income in respect of a decedent (IRD) is income the deceased owner had earned but never paid tax on, such as the gain in an annuity or the balance of a traditional IRA; it is taxed to whoever receives it, with a deduction for any federal estate tax paid on it.

Full entry: Annuity taxes

Income rider

An income rider is an optional add-on to a deferred annuity that guarantees a set annual withdrawal for life, for a fee, while you keep ownership of the account value.

Full entry: Income riders

Income rider vs annuitization

Annuitizing converts the account value, not the benefit base, into guaranteed payments and ends your access to the money; turning on the rider pays income from the benefit base while you keep the account.

Full entry: Income riders

Income rider vs DIA

A deferred income annuity locks in a future lifetime income today for an irrevocable premium and usually pays more; an income rider reaches a lower income at the same start age but keeps the account value and the ability to cancel.

Full entry: Income riders

Income rider vs SPIA

A SPIA converts a lump sum into immediate lifetime income at a higher payout per dollar; an income rider pays less but keeps the account value, the death benefit and the option to change your mind.

Full entry: Income riders

Income start waiting period

The income start waiting period is the minimum time, usually one contract year, and the minimum age, often 50 to 60, that must pass before lifetime income can be activated.

Full entry: Income riders

Income start window

The income start window is the period after purchase within which a SPIA’s first payment must begin, generally within one year (commonly 13 months) of the premium date, for the contract to be treated as an immediate annuity.

Full entry: Immediate annuities (SPIA)

Increasing income

Increasing income is an optional payout election that starts at a lower payout percentage and raises the annual income by the index interest credited to the account each year, never decreasing.

Full entry: Income riders

Independent broker vs captive agent

A captive agent represents one carrier and can only sell that carrier’s contracts; an independent agent or agency is appointed with many carriers and can quote across them, though both are paid by the carrier that issues the contract.

Full entry: Buying and owning

independent marketing organization

See IMO/FMO on Annuity fundamentals.

indexed annuity

See Fixed index annuity on Fixed index annuities.

Index-linked interest

Index-linked interest is interest the carrier credits to your account value based on a formula applied to an index’s change over the crediting term; it is a contractual credit, not a market return.

Full entry: Fixed index annuities

Index segment

An index segment is a portion of the account value allocated to one crediting strategy for one crediting term; a contract can hold several segments at once.

Full entry: Fixed index annuities

Inherited IRA annuity 10-year rule

Under the 10-year rule, a beneficiary of an IRA owner who died in 2020 or later, and who is not an eligible designated beneficiary, must withdraw the entire account by December 31 of the year containing the 10th anniversary of the death; if the owner had already reached the required beginning date, annual distributions must also continue in years one through nine.

Full entry: Annuity taxes

Insurance carrier

The insurance carrier is the life insurance company that issues the contract and whose general account backs every guarantee in it.

Full entry: Annuity fundamentals

Insurance contract vs investment

A fixed or index annuity is an insurance contract, not a security: the carrier owns the underlying assets and promises you a result, rather than passing market gains and losses through to you.

Full entry: Annuity fundamentals

Interest crediting date

The interest crediting date is when earned interest is posted to the account value, usually daily, monthly or on the contract anniversary, as the contract specifies.

Full entry: Fixed annuities and MYGAs

Interest-only withdrawals

An interest-only withdrawal provision lets you withdraw the interest credited, monthly or annually, without surrender charge, leaving the premium intact.

Full entry: Fixed annuities and MYGAs

Interest rate sensitivity

Interest rate sensitivity is how much a SPIA payout changes when bond yields move; a one percentage point rise in long-term rates typically raises a life-only payout at age 70 by roughly 7% to 10%, and a fall lowers it by about the same.

Full entry: Immediate annuities (SPIA)

Interim strategy value

The interim strategy value is the value a multi-year segment is given between crediting dates for withdrawals, surrender or death, calculated by a contract formula rather than the actual index credit.

Full entry: Fixed index annuities

Interim value

Interim value is the carrier’s calculated value of a RILA segment before the segment ends, based on the market value of the options and bonds backing it; withdrawals, surrenders and death claims during a segment are paid at interim value, not the stated buffer and cap terms.

Full entry: RILAs and variable annuities

investment in the contract

See Cost basis on Annuity taxes.

Investment portfolio

A life insurer’s investment portfolio is the pool of assets, mostly bonds, mortgages and other fixed-income instruments, that backs its general account obligations; its quality and liquidity determine how safely the carrier can keep its guarantees.

Full entry: Carrier strength and ratings

IRD

See Income in respect of a decedent on Annuity taxes.

Irrevocability

A SPIA is irrevocable: once the free look period passes and payments begin, you cannot cancel the contract, change the payout option, or get the premium back as a lump sum.

Full entry: Immediate annuities (SPIA)

Issue age

Issue age is the owner’s or annuitant’s age when the contract is issued; it sets eligibility, the surrender schedule allowed and, for income products, the payout rate.

Full entry: Annuity fundamentals

Joint and survivor

A 100% joint and survivor annuity pays a fixed amount for as long as either of two annuitants is alive, with no reduction when the first one dies.

Full entry: Immediate annuities (SPIA)

Joint and survivor with reduction

A joint and survivor annuity with reduction pays a fixed amount while both annuitants are alive, then continues at a reduced percentage (commonly 75%, two-thirds or 50%) to the survivor for life.

Full entry: Immediate annuities (SPIA)

Joint annuitant

A joint annuitant is a second measuring life, used so that income continues until both people have died.

Full entry: Annuity fundamentals

Joint life

A joint life annuity (first-to-die) pays while both annuitants are alive and stops entirely when either one dies; it is rare, pays the most of any two-life option, and leaves the survivor with nothing.

Full entry: Immediate annuities (SPIA)

Joint life payout

A joint life payout guarantees the income for as long as either spouse lives, at a payout percentage usually 0.50% to 1.00% lower than single life and based on the younger spouse’s age.

Full entry: Income riders

Joint owner

A joint owner shares full contract rights with the owner; both signatures are needed for changes, and the death of either owner triggers the death benefit.

Full entry: Annuity fundamentals

Joint QLAC

A joint QLAC names your spouse as joint annuitant so that payments continue for the survivor’s lifetime; the regulations allow a spouse as joint annuitant, with the survivor benefit set by the contract within federal limits.

Full entry: Deferred income and QLAC

Keep vs surrender decision

The keep vs surrender decision weighs the known cost of leaving (surrender charge, MVA, lost bonus, possible tax) against the ongoing cost of staying (the gap between what the contract pays and what you could earn elsewhere, for the years left) to find whether, and when, an exit pays for itself.

Full entry: Buying and owning

Level income

Level income is the default payout option, a fixed annual dollar amount that never decreases and never increases, paid for life.

Full entry: Income riders

Life only

A life-only (straight life) payout pays a fixed amount for as long as the annuitant lives and stops at death, with nothing paid to anyone else, no matter how few payments were made.

Full entry: Immediate annuities (SPIA)

Life policy to annuity

A life insurance policy can be exchanged tax-free for an annuity under section 1035(a)(1), carrying the policy’s cost basis (premiums paid less dividends received) into the annuity; the reverse, annuity to life policy, is not permitted.

Full entry: Annuity taxes

Lifetime income amount

The lifetime income amount is the guaranteed dollar figure you can withdraw each contract year for life, equal to the benefit base at activation multiplied by your payout percentage.

Full entry: Income riders

Life with cash refund

Life with cash refund pays for the annuitant’s lifetime and, at death, pays the beneficiary a lump sum equal to the premium minus all payments already received, if that difference is positive.

Full entry: Immediate annuities (SPIA)

Life with installment refund

Life with installment refund pays for the annuitant’s lifetime and, at death, continues the same periodic payments to the beneficiary until total payments equal the premium.

Full entry: Immediate annuities (SPIA)

Life with period certain

Life with period certain pays for the annuitant’s lifetime, but guarantees payments for a minimum number of years (commonly 5, 10, 15 or 20); if the annuitant dies before the period ends, the beneficiary receives the remaining payments.

Full entry: Immediate annuities (SPIA)

LIFO

See Gains-first taxation on Annuity taxes.

Liquidity

Liquidity is how quickly and cheaply you can turn contract value into cash; in an annuity it is limited by design in exchange for the guarantees.

Full entry: Annuity fundamentals

Liquidity riders

Liquidity riders are optional SPIA features that allow a one-time or limited withdrawal, or an advance of several future payments, in exchange for a lower payment or a fee.

Full entry: Immediate annuities (SPIA)

The liquidity trade-off

The liquidity trade-off is the deal at the heart of every annuity: you accept limited access to your money for a set period, and the carrier pays you a higher guarantee than it could if you might leave at any time.

Full entry: Annuity fundamentals

Loans and pledges

A loan from, or a pledge or assignment of, a non-qualified annuity is taxed as if you had withdrawn the amount borrowed or pledged, gain first, with the 10% additional tax if you are under 59½.

Full entry: Annuity taxes

Longevity annuity

A longevity annuity is a deferred income annuity bought specifically to cover the late years of life, typically with income starting at 80 to 85, so that a relatively small premium produces a large payment if you live that long.

Full entry: Deferred income and QLAC

Longevity risk

Longevity risk is the risk of outliving your savings; a life-contingent annuity transfers that risk to the carrier by paying for as long as you live, however long that is.

Full entry: Immediate annuities (SPIA)

long-term care rider

See LTC rider on Contract provisions and waivers.

Lost contract

A lost contract is simply a missing paper copy; the contract itself is the carrier’s record, and the carrier will issue a duplicate or accept a signed lost-contract statement for any transaction that would normally require the original.

Full entry: Buying and owning

LTC benefits from an annuity

Under federal law since 2010, qualified long-term care benefits paid from an annuity with a tax-qualified LTC rider are generally received income-tax-free, even when they come from gain that would otherwise be taxable.

Full entry: Contract provisions and waivers

LTC rider

A long-term care rider on an annuity pays an enhanced benefit, typically a multiple of the account value spread over several years, if the owner cannot perform activities of daily living or needs qualifying care.

Full entry: Contract provisions and waivers

Lump sum to a beneficiary

A beneficiary who takes a non-qualified annuity’s death benefit in one payment owes ordinary income tax on the entire gain in the year received; the owner’s cost basis comes back tax-free, and the 10% additional tax never applies to death payments.

Full entry: Annuity taxes

margin

See Spread on Fixed index annuities.

Market value adjustment

A market value adjustment (MVA) raises or lowers the value paid on an early withdrawal based on how interest rates have moved since the contract was issued: rates up, value down; rates down, value up.

Full entry: Contract provisions and waivers

Maturity date

The maturity date, or annuity date, is the latest date by which a deferred contract must be annuitized or paid out, often tied to the annuitant reaching a set age such as 95 or 100.

Full entry: Annuity fundamentals

M&E charge

The mortality and expense (M&E) risk charge is the insurer’s annual fee for the insurance features of a variable annuity, typically 1% to 1.5% of account value, deducted daily from the subaccounts.

Full entry: RILAs and variable annuities

Medically underwritten SPIA

A medically underwritten (impaired risk) SPIA prices the payout on the annuitant’s actual health rather than standard tables, paying more per dollar to buyers whose medical conditions shorten their expected lifespan.

Full entry: Immediate annuities (SPIA)

Minimum guaranteed cap and participation

The minimum guaranteed cap and participation rate are the contractual floors below which renewal caps and participation rates cannot be set, often as low as 1% and 10%.

Full entry: Fixed index annuities

Minimum guaranteed rate

The minimum guaranteed rate is the contractual floor below which the carrier can never set a renewal rate, typically 1% to 3%, stated in the contract at issue.

Full entry: Fixed annuities and MYGAs

Mixing strategies

Mixing strategies means allocating across several crediting methods so that at least part of the account value is positioned for whatever kind of year the index has.

Full entry: Fixed index annuities

Monthly average

Monthly average crediting compares the average of the index’s twelve monthly values to the starting value, then applies the cap or participation rate to that smaller, smoother change.

Full entry: Fixed index annuities

monthly cap

See Monthly point-to-point on Fixed index annuities.

Monthly interest payout

A monthly interest payout sends the contract’s earned interest to you each month, giving a fixed annuity a paycheck feel while leaving principal untouched.

Full entry: Fixed annuities and MYGAs

Monthly point-to-point

Monthly point-to-point, or monthly sum, caps each month’s index change on the upside (often 1.5% to 3%) but counts losses in full, then adds the twelve results together for the year’s credit, floored at zero.

Full entry: Fixed index annuities

monthly sum

See Monthly point-to-point on Fixed index annuities.

monthly sum cap

See Monthly point-to-point on Fixed index annuities.

Moody’s

Moody’s publishes an Insurance Financial Strength Rating on a scale from Aaa down to C, using numeric modifiers 1, 2 and 3 instead of plus and minus signs, to express the likelihood that a carrier meets its policyholder obligations.

Full entry: Carrier strength and ratings

mortality and expense charge

See M&E charge on RILAs and variable annuities.

Mortality credits

Mortality credits are the extra income survivors in an annuity pool receive because the premiums of people who die early stay in the pool and are paid out to those still living.

Full entry: Immediate annuities (SPIA)

MSCI EAFE

MSCI EAFE is a price index of large and mid-size companies in developed markets outside the U.S. and Canada (Europe, Australasia, Far East); some FIAs offer it as an international option.

Full entry: Fixed index annuities

Multi-index blended strategies

A multi-index blended strategy credits interest on a weighted mix of several indices, sometimes weighting the best performer most heavily after the fact.

Full entry: Fixed index annuities

multi-year guarantee annuity

See MYGA on Fixed annuities and MYGAs.

multi-year guaranteed annuity

See MYGA on Fixed annuities and MYGAs.

Multi-year point-to-point

Multi-year point-to-point measures the index over three or more years and credits once at the end, typically with uncapped or high-participation terms.

Full entry: Fixed index annuities

Mutual vs stock company

A mutual insurer is owned by its policyholders and has no outside shareholders, while a stock insurer is owned by shareholders who expect a return; neither structure is automatically safer, but they pull the carrier in different directions.

Full entry: Carrier strength and ratings

MVA

See Market value adjustment on Contract provisions and waivers.

MVA floor

An MVA floor caps the negative adjustment so that it can never reduce the payout below a stated minimum, often the guaranteed minimum surrender value or the premium less withdrawals and surrender charges.

Full entry: Contract provisions and waivers

MVA-free window

The MVA-free window is any period or withdrawal type the MVA does not apply to: free withdrawals, the renewal window at the end of the term, death benefits and waiver withdrawals.

Full entry: Contract provisions and waivers

MYGA

A multi-year guaranteed annuity (MYGA) is a fixed annuity whose interest rate is locked for the entire guarantee period, typically two to ten years, so the yield is known on the day you buy.

Full entry: Fixed annuities and MYGAs

MYGA ladder

A MYGA ladder splits a sum across contracts with staggered terms, such as 2, 3, 5 and 7 years, so money matures regularly and each maturity can be reinvested at current rates.

Full entry: Fixed annuities and MYGAs

MYGA vs bond fund

A bond fund has no maturity date and can lose value when rates rise; a MYGA guarantees principal and a fixed rate, with no market pricing, in exchange for a surrender period.

Full entry: Fixed annuities and MYGAs

MYGA vs CD

A MYGA and a CD both guarantee a fixed rate for a fixed term; the MYGA usually pays more and defers tax, while the CD is FDIC-insured, taxed yearly and cheaper to exit early.

Full entry: Fixed annuities and MYGAs

MYGA vs Treasury

A Treasury note is backed by the federal government, exempt from state tax and fully liquid; a MYGA usually pays a higher rate, defers all tax, but relies on the carrier and locks the money.

Full entry: Fixed annuities and MYGAs

NAIC

The National Association of Insurance Commissioners (NAIC) is the standard-setting body of the state insurance regulators; it writes the model laws, accounting rules and capital formulas the states adopt, but it is not itself a regulator and cannot enforce anything directly.

Full entry: Carrier strength and ratings

Nasdaq-100

The Nasdaq-100 is a price index of 100 large non-financial companies listed on the Nasdaq exchange, heavily weighted to technology; some FIAs offer it as a capped strategy.

Full entry: Fixed index annuities

National Association of Insurance Commissioners

See NAIC on Carrier strength and ratings.

No dividends

FIA interest is calculated on a price index, which excludes dividends; you receive none of the dividend income the underlying companies pay.

Full entry: Fixed index annuities

Nonforfeiture rate

The nonforfeiture rate is the minimum interest rate state law requires a carrier to use when calculating the guaranteed minimum surrender value.

Full entry: Annuity fundamentals

Non-guaranteed column

The non-guaranteed columns show projected values under the illustrated historical scenarios, assuming current caps and rates continue; they are permitted projections, not promises.

Full entry: Fixed index annuities

Non-natural owner rule

Under the non-natural owner rule, a deferred annuity owned by a corporation, partnership or other entity that is not a human being loses tax deferral, and its annual growth is taxed as ordinary income each year.

Full entry: Annuity taxes

non-qualified annuity

See Qualified vs non-qualified on Annuity taxes.

nonqualified annuity

See Qualified vs non-qualified on Annuity taxes.

Nonqualified stretch

A nonqualified stretch lets a beneficiary keep an inherited non-qualified annuity deferred and take only annual required amounts based on their own life expectancy, spreading the gain over decades; it is the carrier’s administrative version of the 72(s)(2) life-expectancy option.

Full entry: Annuity taxes

No step-up in basis

No. Annuities receive no step-up in basis at death; the beneficiary inherits the owner’s original cost basis, and all deferred gain is taxable to the beneficiary as ordinary income when withdrawn.

Full entry: Annuity taxes

Nursing home waiver

A nursing home waiver lets you withdraw part or all of the contract without surrender charge if you are confined to a qualified care facility for a stated period, typically 30 to 90 consecutive days.

Full entry: Contract provisions and waivers

Offshore reinsurance

Offshore reinsurance moves an insurer’s reserves and the assets backing them to a reinsurer domiciled outside the United States, most often in Bermuda or the Cayman Islands, where capital and accounting rules differ from the U.S. state system.

Full entry: Carrier strength and ratings

Options at maturity

At maturity you can take the money as a lump sum, renew with the same carrier, exchange to a new contract, annuitize, or on some contracts leave it in a no-charge holding rate.

Full entry: Fixed annuities and MYGAs

Options budget

The options budget is the amount, roughly the yield on the carrier’s bond portfolio minus its costs, that the carrier can spend each term on index options; it sets how generous every cap, participation rate and spread can be.

Full entry: Fixed index annuities

Ordinary income

No. All annuity gain is taxed as ordinary income at your regular federal bracket; the long-term capital gains rates that apply to stocks and funds never apply to an annuity.

Full entry: Annuity taxes

Owner

The owner is the person or entity who holds the contract rights: making withdrawals, changing beneficiaries, choosing payout options and surrendering.

Full entry: Annuity fundamentals

Owner-driven vs annuitant-driven contracts

An owner-driven contract pays its death benefit when the owner dies; an annuitant-driven contract pays when the annuitant dies, even if the owner is still living.

Full entry: Annuity fundamentals

Partial 1035 exchange

A partial 1035 exchange moves a portion of a non-qualified annuity directly into a new contract; basis and gain are split between the two contracts in proportion to the cash value moved.

Full entry: Annuity taxes

Partial surrender

A partial surrender is a withdrawal of part of the contract value that leaves the contract in force; carriers use the term for any withdrawal above the free amount.

Full entry: Contract provisions and waivers

Partial withdrawals

A partial withdrawal from a non-qualified deferred annuity is taxable to the extent of the gain in the contract at that moment, measured before surrender charges; a full surrender taxes all remaining gain at once.

Full entry: Annuity taxes

Participation rate

The participation rate is the share of the index gain you are credited, with no ceiling above it unless a cap is also applied.

Full entry: Fixed index annuities

Payment frequency

Payment frequency is how often the SPIA pays: monthly is standard, and most carriers also offer quarterly, semi-annual and annual payments, with the total paid per year slightly higher for less frequent payments.

Full entry: Immediate annuities (SPIA)

Payout percentage

The payout percentage is the share of the benefit base paid to you each year for life once income starts; it is fixed by your age at activation and whether the income covers one life or two.

Full entry: Income riders

Payout phase

The payout phase, also called the distribution or income phase, is the period when the contract sends you regular payments instead of accumulating.

Full entry: Annuity fundamentals

Payout rate

A SPIA payout rate is the annual income divided by the premium; it includes return of your own principal and is not an interest rate or a yield.

Full entry: Immediate annuities (SPIA)

Pension lump sum vs pension payout

A pension lump sum offer versus the monthly pension is the same decision as a SPIA versus keeping the cash: the monthly pension is an annuity priced by the plan, and the lump sum is what it would take to replace it.

Full entry: Immediate annuities (SPIA)

Performance trigger

A performance trigger credits a flat declared rate whenever the index is flat or positive over the term, regardless of how much it rose, and 0% if it finishes down.

Full entry: Fixed index annuities

Period certain only

A period certain only annuity pays a fixed amount for a set number of years and then stops, whether or not the annuitant is alive; if the annuitant dies early, the beneficiary receives the remaining payments.

Full entry: Immediate annuities (SPIA)

Per stirpes vs per capita

Per stirpes passes a deceased beneficiary’s share down to that beneficiary’s descendants; per capita divides the benefit equally among the surviving named beneficiaries only.

Full entry: Contract provisions and waivers

Policy delivery

Policy delivery is the carrier’s hand-off of the issued contract to you, by mail, through the agent, or as an electronic document; in most states the free-look period runs from the delivery date, so delivery is a legal event, not just a mailing.

Full entry: Buying and owning

Policy issue

Policy issue is the date the carrier accepts the application and premium and creates the contract; it sets the contract date from which the contract year, the surrender charge schedule, the rate guarantee and the anniversary all run.

Full entry: Buying and owning

Power of attorney

A power of attorney (POA) is a legal document that lets an agent act for the owner; carriers accept a POA for withdrawals and servicing but review it closely, and many require their own affidavit.

Full entry: Contract provisions and waivers

Pre-August 1982 contracts

Contracts with investment made before August 14, 1982 follow the old rule: withdrawals come first from that pre-1982 basis tax-free, and only then from gain.

Full entry: Annuity taxes

Premium

Premium is the money you deposit into the contract; it is the base from which every other value starts.

Full entry: Annuity fundamentals

Premium bands

Premium bands are deposit size tiers, such as under $100,000 and $100,000 and up, that carry different guaranteed rates on the same contract.

Full entry: Fixed annuities and MYGAs

Premium bonus

A premium bonus is a percentage of premium, commonly 2% to 12%, credited to the account value or benefit base at issue, in exchange for a longer surrender period, lower caps, a vesting schedule or some combination.

Full entry: Fixed index annuities

Price return vs excess return

A price return index measures the change in its components’ prices; an excess return index subtracts a short-term interest rate from that change, so it grows more slowly, especially when rates are high.

Full entry: Fixed index annuities

Private credit exposure

Private credit exposure is the share of an insurer’s portfolio invested in loans and debt that are not traded on public markets; it tends to pay more than public bonds but is harder to value and harder to sell, which is why its growth at annuity carriers is debated.

Full entry: Carrier strength and ratings

Private equity-owned carriers

A private equity-owned carrier is a life insurer controlled by a private investment firm or asset manager, a structure that has grown rapidly in the annuity market and brings both higher rates and a more complex balance sheet.

Full entry: Carrier strength and ratings

Product track record

A product track record is how a carrier has actually treated its in-force contracts over time: renewal rates on fixed annuities, renewal caps and participation rates on index annuities, rider fee changes and service, which ratings do not measure at all.

Full entry: Carrier strength and ratings

Proprietary or hybrid index

A proprietary or hybrid index is one created by a bank or index provider specifically for insurance products, often blending stocks, bonds and commodities under a volatility control, and licensed exclusively to one or a few carriers.

Full entry: Fixed index annuities

Prospectus

A prospectus is the SEC-required disclosure document for a RILA or variable annuity, describing the product’s features, risks, fees and the carrier’s rights to change terms; it is the legal description of what you are buying and overrides anything in the brochure.

Full entry: RILAs and variable annuities

QLAC

A qualifying longevity annuity contract (QLAC) is a deferred income annuity bought with traditional IRA or qualified plan money that meets federal requirements, so its value is left out of your required minimum distribution calculation and its income can start as late as the month after you turn 85.

Full entry: Deferred income and QLAC

QLAC and RMDs

The value of a QLAC is excluded from the IRA or plan balance used to compute your RMD, so each year’s required withdrawal is calculated on a smaller balance until the QLAC’s own payments begin.

Full entry: Deferred income and QLAC

QLAC free look

A QLAC can be returned during the state free look period like any annuity, and the federal QLAC regulations separately allow a contract to be rescinded within 90 days of purchase without losing QLAC status.

Full entry: Deferred income and QLAC

QLAC income start age limit

QLAC income must begin no later than the first day of the month after your 85th birthday; you may choose an earlier start date, but not a later one.

Full entry: Deferred income and QLAC

QLAC premium limit

The QLAC premium limit is the federal cap on total premiums you may pay into all of your QLACs combined: $210,000 for 2026, indexed to inflation in $10,000 steps.

Full entry: Deferred income and QLAC

qualified annuity

See Qualified vs non-qualified on Annuity taxes.

Qualified vs non-qualified

A qualified annuity holds pre-tax retirement money (traditional IRA, 401(k), 403(b)) and is taxed under retirement plan rules; a non-qualified annuity holds money that has already been taxed and is governed by Internal Revenue Code section 72 alone.

Full entry: Annuity taxes

qualifying longevity annuity contract

See QLAC on Deferred income and QLAC.

Rate history

Rate history is the record of the caps, participation rates and declared rates a carrier has actually set on in-force contracts at renewal, year by year.

Full entry: Fixed index annuities

Rate hold during transfer

A rate hold is the specific period, set by the carrier, during which a locked rate stays available while transfer paperwork and funds are in transit.

Full entry: Fixed annuities and MYGAs

Rate lock

A rate lock is a carrier’s promise to issue the contract at the rate in effect on the application date, provided the premium arrives within a set window, usually 30 to 60 days.

Full entry: Fixed annuities and MYGAs

Rating outlook and watch

An outlook is the agency’s view of where a rating is likely to move over the next one to two years; a rating watch (or review) signals that a change is being actively considered, usually within months, because of a specific event.

Full entry: Carrier strength and ratings

Rating trend

Rating trend is the direction a carrier’s ratings and outlooks have moved over the past several years, which tells you more about the carrier’s trajectory than today’s letter does on its own.

Full entry: Carrier strength and ratings

Rating withdrawn

A withdrawn rating means the agency has stopped rating the carrier, either because the carrier asked it to, because the company merged or stopped writing business, or because the agency no longer has enough information to maintain an opinion.

Full entry: Carrier strength and ratings

RBC

See Risk-based capital ratio on Carrier strength and ratings.

RBC ratio

See Risk-based capital ratio on Carrier strength and ratings.

Reallocation at anniversary

Reallocation at anniversary is your right to move money between strategies when a crediting term ends, usually by written or online election before the anniversary date.

Full entry: Fixed index annuities

registered index-linked annuity

See RILA on RILAs and variable annuities.

Rehabilitation and conservatorship

Rehabilitation and conservatorship are the legal processes by which a state insurance regulator takes control of a troubled insurer, through a court order, to protect policyholders while the company is fixed, sold or wound down.

Full entry: Carrier strength and ratings

Reinsurance

Reinsurance is insurance for insurers: the carrier that issued your contract transfers some of its risk and reserves to another company in exchange for a premium, while remaining fully responsible to you for every promise in the contract.

Full entry: Carrier strength and ratings

Renewal caps and participation rates

Renewal caps and participation rates are the new limits the carrier declares for each crediting term after the first; they are non-guaranteed and can rise or fall within the contract’s minimums.

Full entry: Fixed index annuities

Renewal rate

The renewal rate is the new rate a carrier declares when a guarantee period ends, applied to the next period if you keep the contract.

Full entry: Fixed annuities and MYGAs

Renewal window

The renewal window is the period, usually 30 days after the guarantee period ends, during which you can surrender or transfer without charge before the contract renews.

Full entry: Fixed annuities and MYGAs

Replacement

A replacement is any purchase of a new annuity funded by surrendering, exchanging, withdrawing from or letting lapse an existing annuity or life policy; it triggers extra disclosure, a comparison form, and often an extended free look.

Full entry: Buying and owning

Replacement forms

Replacement forms are the state-required notice and comparison documents, signed by you and the agent, that list the existing contract being replaced and set the old and new contracts side by side on surrender charges, rates, features and costs.

Full entry: Buying and owning

Requesting a withdrawal

Requesting a withdrawal is the owner’s written or online instruction to the carrier to pay out part of the account value, stating the amount, the tax withholding election and the payment method; the carrier pays within a few business days once the request is in good order.

Full entry: Buying and owning

required minimum distribution

See RMD age on Annuity taxes.

Reserves

Reserves are the liabilities an insurer must hold on its books to cover the future payments it has promised on in-force contracts, calculated under conservative state rules; they are not the carrier’s own capital, which is the surplus held above them.

Full entry: Carrier strength and ratings

Return of premium before income

Return of premium before income is a DIA death benefit that pays your beneficiary the premiums you paid (sometimes with modest interest) if you die during the deferral period, instead of the contract ending with nothing.

Full entry: Deferred income and QLAC

Return of premium death benefit

A return of premium death benefit guarantees the beneficiary receives no less than total premium paid, less withdrawals, even if the account value is lower.

Full entry: Contract provisions and waivers

Return-of-premium MYGA

A return-of-premium MYGA guarantees that a full surrender will return at least the original premium, less prior withdrawals, even inside the surrender period.

Full entry: Fixed annuities and MYGAs

rider

See Riders overview on Contract provisions and waivers.

Rider charges

Rider charges are annual fees, typically 0.25% to 1.5%, deducted from the account value for an optional benefit; the fee basis (account value or benefit base) and the carrier’s right to raise it are set in the rider.

Full entry: Contract provisions and waivers

Rider fee

The rider fee is an annual charge, typically 0.75% to 1.50% of the benefit base or account value, deducted from the account value every year the rider is in force, including years the index credits nothing.

Full entry: Income riders

Rider fee changes

Most riders let the carrier change the fee, up to a maximum stated in the contract, usually only at a step-up or at the start of a new roll-up period; the fee is otherwise fixed.

Full entry: Income riders

rider fees (general)

See Rider charges on Contract provisions and waivers.

Riders overview

A rider is an optional provision added to the base contract, sometimes free and sometimes for an annual fee, that adds a benefit such as lifetime income, a larger death benefit or long-term care coverage.

Full entry: Contract provisions and waivers

RILA

A registered index-linked annuity (RILA) is a deferred annuity, registered with the SEC as a security, that credits returns based on an index and shares part of any index loss with you, usually through a buffer or a floor, in exchange for higher caps than a fixed index annuity offers.

Full entry: RILAs and variable annuities

RILA cap and participation

A RILA cap is the maximum index gain credited in a segment, and a participation rate is the percentage of the gain credited; both run higher than on a fixed index annuity because the buyer, not the carrier, is absorbing part of the downside.

Full entry: RILAs and variable annuities

RILA floor

A RILA floor is the maximum loss you can take in a segment, typically minus 10% or minus 20%; you absorb losses down to the floor and the carrier absorbs everything beyond it.

Full entry: RILAs and variable annuities

Risk-based capital ratio

The risk-based capital (RBC) ratio compares an insurer’s actual capital to the minimum amount regulators calculate it needs given the risks it holds; the higher the ratio, the larger the cushion above the regulatory floor.

Full entry: Carrier strength and ratings

RMD

See RMD age on Annuity taxes.

RMD age

The RMD age is the age at which required minimum distributions from a traditional IRA or employer plan must begin: 73 for people born 1951 through 1958, and 75 for people born 1960 or later; the first RMD can be delayed to April 1 of the following year.

Full entry: Annuity taxes

RMD-friendly free withdrawals

An RMD-friendly provision treats the required minimum distribution for the contract as a free withdrawal even when it exceeds the standard free amount.

Full entry: Contract provisions and waivers

RMDs from an annuity in an IRA

For a deferred annuity in an IRA, the RMD is calculated on the contract’s value at the prior December 31, divided by the IRS life expectancy factor, like any other IRA; once the contract is annuitized, the annuity payments themselves are the RMD for that contract.

Full entry: Annuity taxes

RMDs while taking income

On most income riders, a required minimum distribution from an IRA annuity is not treated as an excess withdrawal even when it exceeds the lifetime income amount, provided the RMD is calculated on that contract alone.

Full entry: Income riders

Rolling into a new MYGA

Rolling into a new MYGA means moving the maturing contract’s value to a new contract, at the same or another carrier, through a tax-free 1035 exchange or IRA transfer.

Full entry: Fixed annuities and MYGAs

The roll-up headline trap

The roll-up headline trap is choosing an income rider by its advertised roll-up rate when the payout percentage, applied to the base at your start age, is what sets the dollars you receive.

Full entry: Income riders

Roll-up period

The roll-up period is the maximum number of years the benefit base earns roll-up credits; after it ends, the base stops growing unless a step-up occurs.

Full entry: Income riders

Roll-up rate

The roll-up rate is the guaranteed annual percentage by which the benefit base grows during the deferral years; it applies only to the benefit base, never to the account value.

Full entry: Income riders

ROP MYGA

See Return-of-premium MYGA on Fixed annuities and MYGAs.

Roth conversion of an annuity

A traditional IRA annuity can be converted to a Roth IRA, and the taxable amount is the contract’s full fair market value on the conversion date, including the actuarial value of any income rider, death benefit or other guarantees, not just the cash surrender value.

Full entry: Annuity taxes

Roth IRA annuity

An annuity funded with Roth IRA money follows Roth rules: qualified withdrawals and annuity payments are entirely tax-free, there is no RMD during the owner’s life, and the exclusion ratio is irrelevant because nothing is taxable.

Full entry: Annuity taxes

Russell 2000

The Russell 2000 is a price index of roughly 2,000 smaller U.S. companies; a handful of FIAs offer it as a diversifier to the large-cap indices.

Full entry: Fixed index annuities

Securities licensing

Securities licensing is the FINRA registration and state securities registration a person must hold, in addition to a state insurance license, to sell RILAs, variable annuities or any other product in which the buyer can lose money in the market.

Full entry: RILAs and variable annuities

Securities registration

Securities registration means a product is filed with the U.S. Securities and Exchange Commission and sold with a prospectus because the buyer bears investment risk; RILAs and variable annuities are registered, fixed and fixed index annuities are not.

Full entry: RILAs and variable annuities

Segment term

A segment term is the period, typically one, three or six years, over which a RILA measures the index and applies the buffer or floor and the cap; the result is only known and credited at the end of the term.

Full entry: RILAs and variable annuities

Selling annuity payments

Selling annuity payments means assigning some or all of your future guaranteed payments to a factoring company in exchange for a discounted lump sum today; it is legal, often court-supervised, and usually very expensive.

Full entry: Immediate annuities (SPIA)

Separate account

A separate account holds assets apart from the insurer’s general account, legally insulated from the carrier’s other creditors, and is used for variable annuity subaccounts and other products where the policyholder bears the investment risk.

Full entry: Carrier strength and ratings

SEPP

See 72(t) substantially equal payments on Annuity taxes.

Share classes

Share classes are different fee structures for the same variable annuity, labeled by letter, that trade a surrender charge against ongoing cost; the common ones are B, C, L and I (or advisory) shares.

Full entry: RILAs and variable annuities

Simple vs compound roll-up

A simple roll-up adds the same dollar amount to the benefit base each year, a fixed percentage of the original base; a compound roll-up applies the percentage to the prior year’s grown base, so the dollar additions increase each year.

Full entry: Income riders

Single life payout

A single life payout guarantees the income for as long as one covered person lives, with the higher payout percentage, and stops at that person’s death.

Full entry: Income riders

Single premium

A single premium contract accepts one deposit at issue and no further contributions.

Full entry: Annuity fundamentals

single premium immediate annuity

See SPIA on Immediate annuities (SPIA).

S&P 500

The S&P 500 price index tracks 500 large U.S. companies without dividends; it is the most common FIA index and the easiest to verify yourself.

Full entry: Fixed index annuities

S&P Global Ratings

S&P Global Ratings publishes an Insurer Financial Strength Rating on the same AAA-to-D scale it uses for bonds, expressing its view of a carrier’s capacity to pay policy claims on time.

Full entry: Carrier strength and ratings

SPIA

A single premium immediate annuity (SPIA) is a contract in which you pay a carrier one lump sum and the carrier pays you a fixed, guaranteed income starting within a year, for life or for a set period.

Full entry: Immediate annuities (SPIA)

SPIA ladder

A SPIA ladder splits the money intended for guaranteed income into several purchases made over a number of years, so each piece is priced at a different age and interest rate and less money is committed irrevocably at once.

Full entry: Immediate annuities (SPIA)

SPIA vs bond ladder

A bond ladder pays known income for a fixed number of years and returns the principal, while a life SPIA pays more per dollar for an unknown number of years and returns nothing; the ladder keeps control, the SPIA removes the risk of outliving the plan.

Full entry: Immediate annuities (SPIA)

Splitting premium across carriers

Splitting premium across carriers means dividing a large deposit among two or more insurers to limit exposure to any one company’s financial strength.

Full entry: Fixed annuities and MYGAs

Spousal continuation

Spousal continuation lets a surviving spouse who is the sole beneficiary take over the contract as the new owner, keeping the values, the rate and the guarantees in force instead of taking a payout.

Full entry: Contract provisions and waivers

Spousal continuation (tax side)

A surviving spouse named as beneficiary can continue a non-qualified annuity as the new owner under section 72(s)(3), or treat an inherited IRA annuity as their own, with no tax due at the first death and the deferral intact.

Full entry: Annuity taxes

S&P rating

See S&P Global Ratings on Carrier strength and ratings.

Spread

A spread, also called a margin or asset fee, is a fixed percentage subtracted from the index gain before anything is credited; it is not charged when the index is flat or down.

Full entry: Fixed index annuities

Stacking

Stacking means the benefit base grows each year by the index interest credited to the account plus a fixed rider credit, so good index years increase future income rather than just the account.

Full entry: Income riders

Standard death benefit

The standard death benefit on most fixed and index annuities is the full account value, with surrender charges and MVA waived, paid to the named beneficiary.

Full entry: Contract provisions and waivers

Standard & Poor’s

See S&P Global Ratings on Carrier strength and ratings.

State insurance department complaint

A state insurance department complaint is a formal consumer complaint filed with the insurance regulator in your state, which must be answered by the carrier and is reviewed by the department for violations of state insurance law; it is free, it is public in aggregate, and carriers take it seriously.

Full entry: Buying and owning

State insurance regulation

Life insurers in the United States are regulated by the insurance department of each state in which they do business, with primary oversight from the state where the company is domiciled; there is no federal insurance regulator.

Full entry: Carrier strength and ratings

State premium tax

A state premium tax is a tax a handful of states charge the carrier on annuity premiums, which the carrier passes through by deducting it from your deposit at issue or at annuitization.

Full entry: Annuity taxes

Statutory surplus

Statutory surplus is the amount by which an insurer’s assets exceed its liabilities under state accounting rules; it is the carrier’s own capital, the cushion that absorbs losses before any policyholder promise is at risk.

Full entry: Carrier strength and ratings

Step rate

A step rate (also called a trigger rate or performance trigger) credits a fixed, stated return whenever the index finishes a segment flat or up by any amount, with no credit for how far up it went.

Full entry: RILAs and variable annuities

Step-up

A step-up resets the benefit base to the account value at a contract anniversary when the account value is higher, locking in strong index performance as future income.

Full entry: Income riders

structured annuity

See RILA on RILAs and variable annuities.

Subaccounts

Subaccounts are the investment options inside a variable annuity, each a professionally managed portfolio similar to a mutual fund, held in the insurer’s separate account and valued daily.

Full entry: RILAs and variable annuities

substantially equal periodic payments

See 72(t) substantially equal payments on Annuity taxes.

Suitability

Suitability is the rule that an agent may only recommend an annuity if there are reasonable grounds to believe it fits your financial situation, needs and objectives, based on information the agent is required to collect from you before the sale.

Full entry: Buying and owning

Surrender charge

A surrender charge is a percentage of the amount withdrawn above the free amount, deducted by the carrier during the surrender period, declining each year until it reaches zero.

Full entry: Contract provisions and waivers

Surrender charge schedule

The surrender charge schedule is the contract’s table of charge percentages by contract year, starting at the highest rate in year one and declining to zero when the surrender period ends.

Full entry: Contract provisions and waivers

Surrender period

The surrender period is the number of contract years during which a full or excess withdrawal is subject to a surrender charge; it commonly runs 3 to 10 years and matches the product term.

Full entry: Contract provisions and waivers

Surrender value

Surrender value, or cash surrender value, is the account value minus any surrender charge and market value adjustment, and never less than the guaranteed minimum surrender value.

Full entry: Annuity fundamentals

Systematic withdrawals

Systematic withdrawals are scheduled, recurring withdrawals the carrier sends automatically, in a fixed dollar amount or percentage, within the contract’s free withdrawal limits.

Full entry: Fixed annuities and MYGAs

Tax deferral

Tax deferral means the interest or gain credited inside an annuity is not taxed in the year it is earned; it is taxed only when money comes out of the contract.

Full entry: Annuity taxes

Temporary life annuity

A temporary life annuity pays a fixed amount for a set number of years or until the annuitant dies, whichever comes first; it is the opposite of a period certain, since death ends the payments early rather than guaranteeing them.

Full entry: Immediate annuities (SPIA)

Terminal illness waiver

A terminal illness waiver removes surrender charges if a physician certifies a life expectancy of 12 months or less after the contract is issued.

Full entry: Contract provisions and waivers

Traditional declared-rate fixed annuity

A traditional declared-rate fixed annuity guarantees its rate for one year at a time; each anniversary the carrier declares a new rate for the next year, subject to the contract minimum.

Full entry: Fixed annuities and MYGAs

Transfer timelines

A transfer timeline is the time between signing the application and the carrier receiving the money from your current custodian or insurer, typically one to six weeks depending on the source; the new carrier controls almost none of it.

Full entry: Buying and owning

Trust as beneficiary

Naming a trust as beneficiary sends the death benefit to the trustee to administer under the trust’s terms; it gives control but usually forfeits stretch and continuation options an individual would have.

Full entry: Contract provisions and waivers

Trust as owner

A trust can own a non-qualified annuity; if the trust holds the contract as an agent for a natural person, tax deferral continues, but a trust owner complicates payouts, continuation and death benefit timing.

Full entry: Contract provisions and waivers

Trustee-to-trustee transfer

A trustee-to-trustee transfer moves IRA money directly from one custodian or carrier to another without the owner taking possession; it is not a distribution, is not reported as income, and can be done as often as you like.

Full entry: Annuity taxes

two-thirds survivor

See Joint and survivor with reduction on Immediate annuities (SPIA).

Two-year point-to-point

Two-year point-to-point measures the index change over two contract years and credits once at the end, usually with a higher cap or participation rate as compensation for the longer lock-in.

Full entry: Fixed index annuities

Unemployment waiver

An unemployment waiver removes surrender charges on withdrawals if the owner becomes involuntarily unemployed after issue and remains so for a stated period, often 30 to 60 days, while receiving state unemployment benefits.

Full entry: Contract provisions and waivers

VA

See Variable annuity on RILAs and variable annuities.

Variable annuity

A variable annuity is a deferred annuity, registered as a security, in which your premium is invested in subaccounts you choose and your account value rises and falls with them; the carrier guarantees nothing about the value unless you buy a rider that does.

Full entry: RILAs and variable annuities

Variable vs fixed index

A variable annuity gives full market upside and full market downside with annual fees of 2% to 4%; a fixed index annuity gives limited upside, no downside and no explicit fee on the base contract. The right choice depends on whether you are buying growth or protection.

Full entry: RILAs and variable annuities

Volatility-controlled index

A volatility-controlled index automatically shifts between stocks and cash (or bonds) to hold its volatility near a target, often 5% to 10%; the lower volatility makes options cheap, so carriers can offer high participation rates on it.

Full entry: Fixed index annuities

Waiver waiting periods

A waiver waiting period is the time after issue, commonly one contract year, during which a waiver cannot be exercised even if the triggering event occurs.

Full entry: Contract provisions and waivers

What a rating measures

A financial strength rating is an agency’s opinion of how likely an insurer is to meet its obligations to policyholders over time; it does not rate the product, the interest rate, or your experience as a customer.

Full entry: Carrier strength and ratings

What sets the payout

A SPIA payout is set by the annuitant’s age and sex, interest rates on the day of purchase, the payout option chosen, and the carrier’s own pricing; the same premium produces different payments for different people and on different days.

Full entry: Immediate annuities (SPIA)

When an annuity doesn’t fit

An annuity is the wrong answer when you may need the full amount early, when it would hold most of your liquid savings, or when the goal is maximum growth rather than a guarantee.

Full entry: Annuity fundamentals

When an annuity fits

An annuity fits when you want a guarantee the rest of your portfolio cannot give you, on money you will not need in full for the length of the term.

Full entry: Annuity fundamentals

Why MAS focuses on fixed products

MAS sells fixed annuities, MYGAs, fixed index annuities and income annuities because those are the products our licenses cover and the products we believe retirees most often come to an annuity for: a guarantee. We do not sell RILAs or variable annuities, which require a securities license we do not hold.

Full entry: RILAs and variable annuities

Why you can’t withdraw the benefit base

The benefit base can never be withdrawn because it was never deposited; it is a formula input the carrier can promise to grow precisely because it will only ever be paid out slowly, as income, over a lifetime.

Full entry: Income riders

Yield to surrender

Yield to surrender is the annual return you would realize if you fully surrendered at a given point, after the surrender charge and any market value adjustment.

Full entry: Fixed annuities and MYGAs