Key Terms
- Annuity:
- 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 a senior 65 or older; 14 days for a consumer 64 or younger.
- 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- A surrender charge is a fee applied by the insurance company when funds are withdrawn from an annuity prior to the maturity date.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.