Plain-English glossary · 47 terms
Every term below is defined in plain English, in 40 to 80 words, with no rates, caps, or percentages that go stale. These are the 47 words and phrases people actually meet in annuity and indexed universal life paperwork, from annuitization to wash loan. Jump to a letter, or look up the exact term your contract or advisor used.
A tax-deferred swap under Section 1035 of the tax code that lets you replace an existing life insurance policy or annuity with a new one without triggering current taxes on the gains. Full definition
Deeper guide: The retirement tax picture
The IRS test that decides whether a life insurance policy becomes a modified endowment contract. Full definition
See also: Modified Endowment Contract · Deeper guide: IUL, honestly
The most common indexed crediting method. Full definition
Deeper guide: Types of annuities
A feature of most indexed crediting methods where each year's ending index value becomes the next year's starting point. Full definition
Deeper guide: Types of annuities
The person whose life expectancy the insurance company uses to calculate annuity income payments, and to whom those payments are made. Full definition
Deeper guide: What is an annuity?
The moment you convert an annuity's accumulated value into a stream of guaranteed payments, either for the rest of your life or for a set number of years. Full definition
Deeper guide: Income options guide
A bookkeeping value used only to calculate income payments under an annuity rider. Full definition
See also: Roll-Up Rate · Deeper guide: Income options guide
The maximum interest an indexed annuity or indexed universal life policy will credit for a given term, no matter how well the underlying index performs. Full definition
Deeper guide: Types of annuities
What you actually receive if you cancel a permanent life insurance policy or annuity: the account value minus any surrender charge and outstanding loans. Full definition
Deeper guide: IUL, honestly
An insurance company's financial capacity to honor its promises to policyholders, which is the foundation every annuity and life insurance guarantee rests on. Full definition
See also: COMDEX Score · Deeper guide: What is an annuity?
A composite percentile ranking, from one to one hundred, that combines an insurance company's financial-strength ratings from A.M. Full definition
Deeper guide: What is an annuity?
The monthly charge inside a universal life or IUL policy that pays for the actual life insurance protection. Full definition
Deeper guide: IUL, honestly
The formula an indexed annuity or IUL policy uses to translate index movement into interest actually credited to your money. Full definition
See also: Cap Rate, Participation Rate, Spread · Deeper guide: Types of annuities
You pay a premium now and guaranteed income payments start at a future date you select, more than one year away. Full definition
See also: QLAC · Deeper guide: Types of annuities
The IRS formula that splits each payment from an annuitized, non-qualified annuity into two parts: a return of basis that is not taxed of the money you originally paid in, and taxable earnings. Full definition
Deeper guide: The retirement tax picture
An annuity that credits interest based on the movement of a market index, such as the S&P 500, while protecting your principal from index losses. Full definition
Deeper guide: Types of annuities
The minimum interest an indexed annuity or IUL policy can be credited in a term, typically set at zero. Full definition
Deeper guide: Types of annuities
A state-required window, generally ten to thirty days after you receive your contract, during which you can return an annuity or life insurance policy and get your money back. Full definition
Deeper guide: Is an annuity right for me?
A contract feature that lets you take out a set portion of your annuity's account value each year, even during the surrender period, without triggering surrender charges. Full definition
See also: Surrender Charge · Deeper guide: What is an annuity?
An optional rider that lets you withdraw a set annual amount for as long as you live, even if your annuity's account value falls to zero, without annuitizing or giving up control of the remaining balance. Full definition
See also: Benefit Base · Deeper guide: Income options guide
A rider promising that when you annuitize at a stated future date, your income will be calculated on at least a guaranteed minimum amount, regardless of how the annuity's underlying account performed. Full definition
Deeper guide: Income options guide
A rider guaranteeing you can withdraw a set amount each year until you have recovered your entire premium, no matter how the account itself performs. Full definition
Deeper guide: Income options guide
The promise that if you die before annuity payments begin, your beneficiary receives at least a stated amount, commonly the greater of the account value or your total premiums minus withdrawals. Full definition
Deeper guide: Income options guide
An optional benefit added to an annuity, for an annual fee, that guarantees future lifetime income, most commonly through a guaranteed lifetime withdrawal benefit. Full definition
See also: Benefit Base, GLWB · Deeper guide: Income options guide
Permanent life insurance with flexible premiums whose cash value earns interest linked to a market index, subject to caps, participation rates, and a floor that blocks index losses. Full definition
Deeper guide: IUL, honestly
An annuity payout structure covering two people, usually spouses. Full definition
Deeper guide: Income options guide
An adjustment, up or down, applied when you withdraw more than the penalty-free amount or surrender certain fixed annuities early. Full definition
Deeper guide: Annuity vs CD
A life insurance policy that was funded faster than IRS limits allow under the seven-pay test. Full definition
See also: 7-Pay Test · Deeper guide: IUL, honestly
An annual fee deducted from variable annuity assets that pays for the contract's insurance guarantees, including the death benefit, the promise that contract charges will not rise, and the insurer's overhead. Full definition
Deeper guide: Types of annuities
A fixed annuity that locks in one declared interest rate for the entire multi-year term you choose, rather than resetting each year. Full definition
Deeper guide: Annuity vs CD
A provision that keeps a universal life policy in force, sometimes to an advanced age or for life, as long as you pay the specified premium on schedule, even if poor cash value performance would otherwise cause the policy to lapse. Full definition
Deeper guide: IUL, honestly
A rider on permanent life insurance that prevents the policy from lapsing after loans have consumed most of the cash value. Full definition
See also: Policy Loan · Deeper guide: IUL, honestly
The share of an index's gain that counts toward your credited interest in an indexed annuity or IUL policy. Full definition
Deeper guide: Types of annuities
A payout option guaranteeing payments for a minimum number of years no matter what happens. Full definition
Deeper guide: Income options guide
Money borrowed from the insurer using your life insurance cash value as collateral. Full definition
See also: Wash Loan · Deeper guide: IUL, honestly
Extra money the insurer adds to your annuity's account value, calculated as a percentage of what you pay into the contract. Full definition
Deeper guide: Is an annuity right for me?
A deferred income annuity purchased with money from a traditional IRA or workplace retirement plan. Full definition
See also: Required Minimum Distribution · Deeper guide: The retirement tax picture
A qualified annuity is bought with pre-tax retirement money, such as IRA or 401(k) funds, so every dollar withdrawn is taxable and required minimum distribution rules apply. Full definition
Deeper guide: The retirement tax picture
The minimum amount federal law requires you to withdraw each year from traditional IRAs and workplace retirement plans once you reach the age set by current law. Full definition
Deeper guide: The retirement tax picture
Sometimes called a buffer annuity. Full definition
Deeper guide: Types of annuities
The guaranteed annual growth an insurer applies to an income rider's benefit base while you delay taking withdrawals. Full definition
See also: Benefit Base · Deeper guide: Income options guide
You hand the insurer one lump sum and income payments begin within a year, continuing for life or for a period you choose. Full definition
Deeper guide: Types of annuities
An amount the insurer subtracts from the index's gain before crediting interest to an indexed annuity or IUL policy, also called a margin or asset fee. Full definition
Deeper guide: Types of annuities
A state-level safety net, funded by assessments on licensed insurers, that protects annuity and life insurance policyholders if an insurance company fails. Full definition
See also: Claims-Paying Ability · Deeper guide: What is an annuity?
A penalty the insurance company deducts if you withdraw more than your contract allows, or cash out entirely, during the early years of an annuity or permanent life policy. Full definition
See also: Free Withdrawal Provision · Deeper guide: Is an annuity right for me?
An annuity whose value rises and falls with the separate account options you select inside it. Full definition
See also: Mortality and Expense Charge · Deeper guide: Types of annuities
A policy loan in which the insurer credits the cash value backing the loan at the same rate it charges in loan interest, making the net cost of borrowing effectively zero. Full definition
See also: Policy Loan · Deeper guide: IUL, honestly
Definitions describe how these features generally work. Every contract is different, and the specific terms, schedules, and figures that apply to you are set by your own contract and the issuing insurer. All guarantees are backed by the claims-paying ability of the issuing insurer and are not FDIC-insured.
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