Glossary of Terms
1035 exchange
This refers to a provision in the Internal Revenue Code, Section 1035, which allows for the direct transfer of accumulated funds in a life insurance policy, endowment policy, or annuity contract to another similar contract without creating a taxable event, if eligibility requirements are met.
Annuitant(s)
This is generally the same person (or persons) as the owner who receives the income payments from an annuity contract. For an annuity contract that provides lifetime income payments, it is the annuitant's life that determines how long such payments will last.
Annuitization
The act of converting the contract value of a deferred annuity into income payments.
Annuity
An annuity is a contract issued by an insurance company that provides the option of receiving income payments for a specified period of time, such as 20 years or for the life of the annuitant. There are two types of annuity contracts: deferred annuities which grow assets and permit withdrawals in a lump sum or income payments, subject to contract provisions, and immediate annuity contracts which are purchased specifically for guaranteed income, typically for life.
Annuity Payout Period
This is the period of time during which money is paid out of an annuity contract. Examples are 10, 15, 20 years or lifetime.
Annuity Start Date
The date on which the first income payment is made under an annuity contract.
Beneficiary
The person(s) designated to receive money upon the death of the annuitant and/or joint annuitant. All deferred annuity contracts provide a death benefit; however death benefits are an optional feature with income annuities.
CPI-U
The standard abbreviation for the Consumer Price Index for All Urban Consumers as published by the Department of Labor. It is one of the most commonly used measures of the rate of inflation. The index is based on a national survey conducted by the US Bureau of Labor Statistics that measures the average change in prices over time in a fixed market basket of goods and services, chosen to be representative of goods and services purchased by American families for day-to-day living. This may or may not reflect your actual experience with the prices of goods and services. More complete information on the cpi-u is available at: http://www.bls.gov/cpi/cpifaq.htm.
Fixed Annuity
An annuity contract that guarantees that the benefits paid will not fall below a guaranteed value, no matter what option is elected. For example, in a fixed immediate annuity contract, your income payments are guaranteed by the insurer to never fall (i.e., they are fixed). Another example is a fixed deferred annuity, in which interest credits are guaranteed by the insurer not to fall below a guaranteed minimum amount for the entire contract period. Guarantees are subject to the claims-paying ability of the issuing insurance company.
Fixed Payments
Payments provided by an immediate annuity contract in which the dollar amount does not decrease, regardless of market performance or inflation.
Free Look Period
The period of time after the annuity contract is issued when the contract may be cancelled without penalty. The free look period is typically 10 or 20 days, but varies by state.
Immediate Annuity
This is an annuity that begins income payments within one year of the payment of the premium.
Income Annuity
Also known as an immediate annuity, this is a contract issued by an insurance company that guarantees income payments for a specified period of time, typically for the life of the annuitant(s). The amount of the income payments depends on the annuitant’s age, and contract features (for example, inflation protection, death benefit and options selected).
Life Annuity
This is an immediate annuity in which income payments last for the life of a person(s) designated as the annuitant(s).
Premium
The payment you make to an insurance company in exchange for the benefits of an annuity contract.
Separate Account
An account established by an insurance company to hold and invest premiums paid by the contract owner. The amounts held in the account are “separate” from the company’s general account. In the event of insolvency, assets in this account are not available to the insurer’s general creditors.