| Glossary |
The holding place for all the parts of your annuity.
Any time before you "annuitize" your annuity contract.
Additional sums contributed to an annuity after the initial purchase. These purchases are usually subject to a lower minimum than initial purchases.
Fees that cover the costs involved in operating and maintaining the annuity. Examples include the transaction costs of each investment decision, preparing and mailing statements and other communications, and customer service.
The anniversary of your annuity's official starting date. In common practice, the starting date is the day the application and first payment is received in "good order" at the issuing company.
A contract between you and an insurance company, which states that in exchange for your payment, the company agrees to pay you an income in the future.
The person (or persons) designated by the contract owner to receive the income, and on whose life the income payments will be based. Once named, the annuitant cannot usually be changed.
When you annuitize your contract, you trade the value of your contract for the issuing company's guarantee to make payments to you for a certain period or for your lifetime.
The date when income payments begin. It appears in your contract. You may be able to change this date, with limitations, before you reach the annuity date.
There are three major asset classes: Cash and money equivalents; fixed income, such as bonds and bond funds; and equities, such as stocks and stock funds. The division of your money among these asset classes according to your investment strategy is called your asset allocation.
The person or persons named by the contract owner to receive money upon the death of the annuitant or contract owner. The beneficiary can usually be changed at any time.
The person (or persons) responsible for funding the investment and paying the fees. Until the income payments begin, this person has the right to make investment decisions, transfer funds, make withdrawals, end the contract, and name those who will receive income or insurance proceeds. This person also would be subject to income tax on distributions from the contract prior to his or her death, even if the payments are made to another individual.
An annual amount deducted from the value of your account. Once the annuity begins, this fee generally does not increase. (Some fixed annuities have a contract fee, but no administrative fee. This fee may be waived once the account reaches a certain value.)
If the annuitant or contract owner dies during the accumulation phase, the designated person(s)-the beneficiary-will receive all the money in the account or the total amount invested, whichever is greater. The death benefit is usually subject to income tax to the extent it exceeds the adjusted basis in the contract and it is included in the owner's estate.
Any annuity in which you wait at least a year to begin receiving income is a deferred annuity. A deferred annuity can be either fixed or variable.
One of the most basic strategies for reducing risk, diversification is the strategy of investing in a broad range of stocks and/or bonds, or spreading your investment across the securities of different countries, industries, or companies. In this way, potential losses in one area may be offset by potential gains in others.
Offers a guaranteed interest rate for a certain period of time. A fixed annuity is a low-risk product for people who want to know how much they'll be earning.
The annuitant receives generally the same amount of money with each monthly or quarterly payment with no chance of decreasing.
Usually a 10-day guarantee during which you can get back either the amount of your initial purchase or the current value of your annuity contract. State rules vary.
You can specify how much income to receive within a certain time period. The length of time you'll receive payments will depend on how much money you've accumulated and the interest rate it's earning. In other words, it depends on how long your money will last.
You can specify the length of time you want to receive payments. If you die before the end of the period, your beneficiary will receive the rest of the payments.
Different ways by which you can receive income from an annuity. These include lump-sum payment, annuitization, and withdrawal.
The payment that opens your account. There is usually a minimum initial purchase, and a lower minimum for subsequent purchases.
When the issuing company pays you an income according to your choice of options.
Applies only to variable annuities. In most cases, the "M & E" pays for three important features: the guaranteed death benefit; once you've annuitized, the guarantee to provide an income that can't be outlived; and the guarantee that contract expenses won't increase. This fee is a percentage of your annuity's value; and rises or falls accordingly.
Some states charge a tax on the contributions made to an annuity. The issuing company generally charges the annuity contract for any premium tax it pays to the state.
Since investments grow at different rates over time, an asset allocation can drift out of balance. This drift can increase the likelihood that your investments will not meet your expectations. Rebalancing is the process of returning your portfolio to its proper allocation by shifting money among asset classes.
Instead of annuitizing, you could simply choose to withdraw a certain percentage of the value of your annuity each year. There may be charges associated with withdrawals.
The amount you'd receive if, at some point, you chose to stop (surrender) your contract and withdrew all the cash available.
Taxes on earnings are postponed (deferred) until you withdraw any earnings from your annuity.
Taxes are not due on earnings until withdrawn. As long as the purchase payment and earnings remain in the account, they can earn interest or capital gains, which in turn earns interest or capital gains. All earnings are taxed as ordinary income when withdrawn.
You can move money between investment options in a variable annuity without incurring a tax liability.
Total return is the amount your investment earns before deductions for fees and other expenses. Net return is the amount your investment earns after those fees and expenses are deducted.
Offers choice among a range of investment options that will fluctuate in value. A variable annuity is designed for people willing to take more risk with their money in exchange for greater growth potential.
These income payments are based on the performance of underlying investments, and will vary accordingly.
Professionally managed subaccounts within a variable annuity, which pursue different investment strategies and goals. You can usually choose to invest your annuity among a variety of options according to your personal needs.
You can withdraw all or part of your money at any time (although you may need the issuing company's approval, and in some cases, a fee may be charged). See withdrawal charges.
If you withdraw more than the permitted charge-free amount during the first several years (depending on the annuity you own), there may be an annually declining withdrawal or "surrender" charge.
The amount you can withdraw from your annuity without being assessed a penalty by the insurance company.
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