Glossary of terms for understanding annuities
1035 Exchange A tax-free transfer of an annuity contract from one insurer to another. Although a 1035 transfer is tax-free, it might be accompanied by a surrender charge.
Accumulation Phase/Period The period of time prior to the start of annuity payments where all the premiums are paid into the annuity and the money grows tax-deferred.
Annuitant The person whose life expectancy is used to calculate the annuity payment amount. Usually the annuitant purchases the annuity and receives periodic payment under the annuity contract.
Annuitize When you annuitize your contract, the issuing company makes payments to you periodically for a certain time, or for lifetime.
Annuity Payment Period The period that you receive payments under an annuity contract.
Beneficiary The person designated in the contract to receive payments due if the annuitant dies.
Death Benefit The annuity benefit paid out to a beneficiary upon the death of the annuity owner. Generally includes the account balance and possibly an insurance benefit.
Deferred Annuity An annuity that provides a way to accumulate on a tax-deferred basis. With a deferred annuity, you don't have to pay income taxes on earnings until you start receiving payments.
Flexible Premium A kind of annuity that may be bought into multiple times in the future. After depositing the initial premium, the annuity allows periodic additional contributions of which you choose the time and amount.
Free Look Period A period specified in the annuity contract during which you can decide whether to keep an annuity or return it for a total refund. The free look period is usually between ten and 20 days.
Front-End Load A sales charge imposed on an investment purchase at the beginning of a premium payment period.
Guaranteed Minimum Interest Rate The minimum interest rate that the insurance company guarantees to credit during an annuity contract's accumulation phase.
Joint and Survivor Annuity An annuity that continues to provide income until the death of last surviving spouse.
Premium The money you pay to the issuing company to accrue benefits.
Surrender Charge A fee imposed if you withdraw money before the payout phase begins. Generally the charges are a percentage of the total premium deposited.
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