.png)
Annuity Terms and Definitions
All you need to know with
Beavers Retirement Solutions.
Annuitant: The person on whose life the income payments are based. The contract owner decides who the annuitant will be. The contract owner and the annuitant are often the same person.
Annuitize: To convert the account balance under a deferred annuity contract into a stream of income, either for one or more lifetimes or a specific period of time for you, or you and another person.
Annuity: A tax-deferred contract issued by an insurance company that can provide an income for a specified time period, such as a number of years or for life. There are two types of annuities: deferred annuities, which allow you to grow your assets tax deferred and convert your account balance to income payments at a later date; and immediate annuities, which generally allow you to receive income payments right away (but no later than 12 months after issue).
Beneficiary: Generally, the person(s) who receive(s) money upon the death of the annuity’s contract owner or annuitant. The contract owner decides who the beneficiary will be.
Bonus Credit or Bonus Rate: Some fixed annuity contracts offer a higher interest crediting rate in the first year of the annuity contract. After the first year, the rate drops back to a rate consistent with the current market. Some variable annuities offer an additional credit to the annuity account when the annuity is purchased.
Deferred Annuity: A type of personal retirement account issued by an insurance company that provides tax-deferred savings for long-term goals, such as retirement. When you are ready to receive income payments, the deferred annuity provides many choices, including guaranteed income for life. There are two types of deferred annuities: fixed and variable.
Fixed Indexed Annuity: This annuity typically provides the contract owner with an investment return that is a prescribed percentage of the return of an index, such as the S&P 500, while guaranteeing no less than a stated fixed return on the investment.
Free Look Period: Period of time after an annuity contract is delivered (usually between 10 and 30 days) when the owner may cancel the contract and receive either their initial payment or the current value of the annuity contract. State rules vary.
Free Withdrawal: A stipulation in most deferred annuities that allows for early withdrawal without an insurance company-imposed penalty. The maximum withdrawal is usually up to 10 percent of the annuity value. Tax penalties may apply if you withdraw assets before reaching age 59 1/2.
Immediate Annuity: An annuity contract that you generally buy with a lump sum and from which you begin receiving income within a short period, always within 12 months. An immediate annuity can be either fixed or variable. Payments must be no less frequent than annual.
Income for Life Annuity: An annuity income option that guarantees income for the life of the annuitant, no matter how long he/she lives. The amount of the payment depends on your account value and the life expectancy of the annuitant. The payment amounts may be fixed or variable, depending on the annuity.
Income for Two Lives Annuity: An annuity income option that guarantees income for the lives of two annuitants. After one annuitant dies, payments continue if the other annuitant is alive. Payments stop once both annuitants are no longer alive. Payments after the first annuitant’s death may be the same or lower, depending on what was selected at the time of purchase. You may be able to choose fixed or variable payments, depending on the annuity. Sometimes called Joint and Survivor.
Non-Qualified Annuity: A tax-deferred annuity generally purchased by individuals with after-tax dollars, rather than as part of a tax-qualified retirement plan such as an IRA.
Premium: A contribution or payment into an annuity. Some annuities allow you to make a single contribution, and some allow you to make multiple contributions on a regular basis, or anytime you like.
Principal: Both the initial investment and any ongoing contributions made into an annuity.
Prospectus: The legal document that provides detailed information about your variable-annuity contract. It must be given to every person offered a variable-annuity contract.
Qualified Annuity: An annuity contract you generally buy with pre-tax dollars as part of a tax-qualified retirement plan.
Renewal Rate: The new declared interest rate for money that has completed the initial guaranteed interest-rate period. In a fixed deferred annuity, for example, the interest rate on your contract may be renewed periodically, usually every year, to reflect current market conditions.
Rider: An amendment to an insurance policy that expands or restricts the policy’s benefits or excludes certain conditions from coverage.
Surrender Charge: In a tax-deferred investment such as an annuity or a Traditional IRA, no current tax is payable on gains within the investment; no taxes are due until you make withdrawals.
Tax-Deferred: In a tax-deferred investment such as an annuity or a Traditional IRA, no current tax is payable on gains within the investment; no taxes are due until you make withdrawals.
Tax-Free “1035” Exchanges: Section 1035 of the U.S. tax code allows you to exchange an existing variable-annuity contract for a new annuity contract without paying any tax on the income and investment gains in your current variable-annuity account. These tax-free exchanges, known as 1035 exchanges, can be useful if another annuity has features that you prefer, such as a larger death benefit, different annuity payout options or a wider selection of investment choices.
Tax-Free Transfers: The ability to move money between the investment choices and fixed account within a variable annuity without incurring current taxes. In most annuities, these transfers are free of charge. However, additional restrictions may apply.
Variable Annuity: A type of annuity in which the account balance may fluctuate based on the value of underlying investments such as stocks and bonds. The contract owner has the ability to allocate money among several available investment choices. The contract owner, not the insurance company issuing the contract, assumes investment risks.
Variable Immediate Annuity: An income annuity that begins providing income payments right away, or soon after purchase. The amount of the payments may increase or decrease based upon the performance of the investment choices that you select.
Withdrawal Charge: The charge imposed by an annuity issuer for early withdrawal. The withdrawal charge will be described in the annuity contract. Most annuities allow some withdrawals without this charge (10 percent of your balance each year is typical). Withdrawal charges also typically decline over time, eventually reaching zero.
Withdrawals: Money that you withdraw from your annuity. In a deferred annuity, you can generally make full or partial withdrawals, although a withdrawal charge may be imposed, as well as ordinary income taxes. Most Fixed Indexed Annuities allow a “free” 10% withdrawal after the first policy year… meaning no surrender charges will be imposed from the insurance company.