Key Terms

A contract or agreement with an insurance or investment company that provides a source of income or series of payments from the investment, either now or at a set future date, such as retirement.
Deferred Annuity:
A deferred annuity is established by paying one or more premiums over a period of time and allows assets to grow tax-deferred before being converted to payments.
Equity-Indexed Annuity:
An equity-indexed annuity, either immediate or deferred, earns interest or provides benefits that are linked to an external equity index, such as Standard and Poor's 500 Composite Stock Price Index.
Fixed Amount Options:
Fixed amount options are a settlement option that provides payments for a specific dollar amount and will last until the account balance is exhausted.
Fixed Annuity:
A fixed annuity provides fixed-dollar income payments backed by the guarantees in the contract.
Fixed Period Options:
Fixed period options are a settlement option which provides that the annuity’s accumulated value will be paid out over a specified period of time, such as 10 or 20 years.
Flexible Premium Annuity:
A flexible premium annuity is funded through a series of premium payments during a specific period of time.
Free Look Period:
The free look period is a 21-day period for all consumers.
Immediate Annuity:
An immediate annuity is funded through a single premium and payments begin immediately at the end of each payment period, which is usually monthly or annually.
Life Income Options:
Life income options are a settlement option that provides payments for the remainder of the annuitant’s life.
Lump Sum Distributions:
Lump sum distributions are a settlement option that allows the contract owner to receive the balance of the account in a single payment.
Maturity Date:
The date that determines when payments begin.
Non-Qualified Annuities:
A non-qualified annuity is funded with after-tax dollars. Taxes are applied to the interest earnings portion of the investment at time of withdrawal.
Qualified Annuity:
A qualified annuity is generally tax deductible and taxes on interest are deferred until withdrawal.
Single Premium Annuity:
A single premium annuity is funded through a single lump-sum premium payment.
Surrender Charge:
A surrender charge is a fee applied by the insurance company when funds are withdrawn from an annuity prior to the maturity date.
Variable Annuity:
Variable annuity investments are securities, which tend to fluctuate with economic conditions.