The annuity vocabulary, decoded.

A provision of IRC Section 1035 that allows a non-qualified annuity to be exchanged for another non-qualified annuity (or specific other contracts) without triggering tax on the gain.

An employer-sponsored tax-deferred retirement plan. Subject to RMDs at the age set by current IRS regulations.

A tax-deferred retirement plan for employees of public schools and certain non-profit organizations. Similar to a 401(k).

A tax-deferred retirement plan for state and local government employees and certain non-profit employees.

A financial strength rating issued by A.M. Best Company for insurance carriers. Scale: A++ (Superior), A+, A, A- (Excellent), B++, B+ (Good), B, B- (Fair), C++ through F.

The period during which the premium grows inside a deferred annuity contract before income payments begin.

A feature on most indexed annuities where credited interest is locked in at the end of each crediting period and the new contract value becomes the starting point for the next period.

The person whose life and age determine the contract's payout calculations. Often (but not always) the same person as the owner.

The period during which the carrier pays income to the contract owner. Annuitization is generally irrevocable once initiated.

A long-term contract issued by a life insurance carrier under which the consumer pays one or more premiums and the carrier returns periodic payments according to the contract terms.

The person or entity designated to receive remaining contract value or guaranteed payments upon the annuitant's death.

A separate accounting value used to calculate income or death benefit payments on a deferred annuity with an income or death benefit rider. The benefit base grows according to contractually defined rules (often a roll-up rate) independently of the contract value.

A regulatory standard, adopted by most states in the form of an updated Suitability in Annuity Transactions Model Regulation, requiring recommendations to be in the consumer's best interest, not merely suitable.

An indexed or variable annuity that pays a premium bonus at issue. The bonus is funded by lower long-term contract economics (longer surrender period, lower cap rates) rather than being a free gift.

The maximum interest credited to an indexed annuity in a given crediting period.

A refund annuity option that pays the difference between the original premium and total payments received as a lump sum to a beneficiary at the annuitant's death.

A crediting method that locks in gains at predefined intervals (often monthly) within the crediting period. Originated as a French derivative structure.

An advisor compensated by commissions paid by product providers when the client purchases a product. Standard channel for annuity sales.

The formula used to measure index movement over a crediting period on an indexed annuity. Common methods include annual point-to-point, monthly point-to-point (sum), and monthly average.

An optional rider that enhances the death benefit paid to beneficiaries above what the base contract provides. Common enhancements: roll-up rate on a benefit base, high-water-mark contract value, or stepped-up annual reset.

The interest rate the carrier credits to a fixed annuity for a defined period. On a MYGA, the declared rate is locked for the term. On a traditional fixed annuity, the carrier can change the declared rate periodically.

A Deferred Income Annuity. A contract that converts a premium today into guaranteed income beginning at a future date, typically 5 to 20 years later.

The original term for what is now called a fixed indexed annuity (FIA). The product was renamed to clarify that it is regulated as a fixed insurance product, not as a security.

The percentage of each annuity payment that is considered a return of premium (not taxed) on a non-qualified income annuity. Calculated at the income start date.

An advisor compensated solely by fees from clients, with no commission income from product sales. Typically a registered investment adviser under fiduciary duty.

A legal obligation to act in the client's best interest, applying to registered investment advisers under the Investment Advisers Act of 1940. Higher standard than Reg BI or the suitability standard.

First-In-First-Out ordering. Generally does not apply to non-qualified annuities (which use LIFO), but may apply in specific exception cases.

The Financial Industry Regulatory Authority. Self-regulatory organization for broker-dealers and registered representatives. Regulates the sale of variable annuities (which are securities).

An annuity that credits a guaranteed interest rate set by the carrier. The rate may be guaranteed for one year (traditional fixed) or for a multi-year term (MYGA).

The minimum interest credit on an indexed annuity. For most FIAs, the floor is 0%, meaning a negative index period credits zero rather than a negative amount.

Field Marketing Organization. Functionally similar to an IMO. Supports independent agents through carrier contracting, training, and case design.

A state-mandated period after policy issue during which the consumer can cancel the contract for a full refund. Typically 10 to 30 days depending on state and product.

An annual amount that can be withdrawn from a deferred annuity without triggering a surrender charge. Typically 10% of the contract value per year, beginning in year 2.

A Guaranteed Lifetime Withdrawal Benefit rider. Guarantees a stream of withdrawals for life, even if the contract value reaches zero. The withdrawal amount is calculated as a percentage of a benefit base.

A Guaranteed Minimum Accumulation Benefit rider. Guarantees a minimum contract value at the end of a defined waiting period, regardless of subaccount performance. Found primarily on variable annuities.

A Guaranteed Minimum Income Benefit rider. Guarantees a minimum lifetime income amount available when the contract is annuitized, calculated from a contractually defined benefit base.

A Guaranteed Minimum Withdrawal Benefit rider. The predecessor to the GLWB. Guarantees a return of premium through withdrawals over a defined period, but unlike GLWB, withdrawals stop when the benefit base is exhausted.

Independent Marketing Organization. A wholesale entity that contracts with multiple carriers and supports independent insurance agents who sell those carriers' products.

An optional contract feature that adds a guaranteed lifetime income benefit to a deferred annuity. The rider tracks a separate benefit base used to calculate income.

An annuity that credits interest based on the movement of a market index. Upside is capped or scaled. Downside is floored at zero. Also called a fixed indexed annuity (FIA).

A refund annuity option that continues regular payments to a beneficiary until the original premium has been fully returned at the annuitant's death.

Individual Retirement Account. A tax-advantaged retirement savings account. Traditional IRAs are tax-deferred. Roth IRAs are funded with after-tax dollars and grow tax-free.

A payout option that pays income for the lifetimes of two annuitants. Many contracts include a survivor reduction (e.g., payments drop to 50% or 75% at the first death).

A payout option that pays income based on two lives. Most common variant is joint and survivor.

Two persons sharing ownership of an annuity contract, with rights divided between them according to the contract terms.

A payout option that pays income for the lifetime of one annuitant. Payments stop at death. The highest-paying payout option because the carrier expects no payments after the annuitant dies.

Last-In-First-Out ordering for non-qualified annuity withdrawals. Earnings (which were credited last) come out first and are fully taxable. Basis comes out after all earnings have been withdrawn.

The Mortality and Expense charge on a variable annuity. Funds the death benefit guarantee and a portion of carrier administrative costs. Typical range: 0.85% to 1.40% of contract value annually.

Another term for spread. The annual deduction from the index return before any cap is applied on an indexed annuity.

A crediting method that averages twelve monthly index values and compares the average to the starting value. Tends to dampen both gains and losses relative to point-to-point.

A crediting method that sums twelve monthly index returns, with each positive month capped at a monthly cap and each negative month recorded in full.

A credit and financial strength rating issued by Moody's Investors Service. Scale: Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3 (Investment grade), Ba1 and below (Speculative grade).

The economic benefit a long-lived annuitant receives because contract owners who die earlier subsidize continued payments to those who live longer. The structural feature that makes life-payout annuities economically distinct from a self-managed bond portfolio.

An adjustment to the surrender value of a deferred annuity based on the change in a reference interest rate between issue and surrender. If rates have risen, the MVA reduces the surrender value; if rates have fallen, the MVA increases it.

A Multi-Year Guaranteed Annuity. A fixed annuity that pays a guaranteed interest rate for a fixed term, typically 2 to 10 years.

The National Association of Insurance Commissioners. A standard-setting body composed of state insurance regulators. Publishes model regulations adopted by most states, including the Suitability in Annuity Transactions Model Regulation.

An annuity funded with after-tax money. Withdrawals are subject to LIFO ordering and exclusion ratio treatment for income payments.

The tax rate applied to withdrawals from an annuity. Higher than the long-term capital gains rate, which does not apply to annuity withdrawals.

The person who owns the annuity contract and has the rights to make changes, take withdrawals, and designate beneficiaries. May or may not be the same person as the annuitant.

The percentage of the index movement shared with an indexed annuity contract.

The income paid by the carrier under an annuity contract. Calculated from premium, age, sex, payout type, and carrier portfolio yield.

A payout option that pays income for a guaranteed minimum number of years (commonly 10, 15, or 20). If the annuitant dies before the period ends, remaining payments go to beneficiaries.

A crediting method that compares the index value on the first day of the period to the index value on the last day. The simplest and most common method.

The amount paid into an annuity contract. Most modern annuities are single-premium products (one payment at issue), though some flexible-premium products exist.

A credit added to the contract value at issue on some indexed and variable annuities. Common bonuses range from 4% to 10% of premium. Bonuses typically come with longer surrender periods, lower caps or participation rates, and a vesting schedule.

A contract feature guaranteeing that the original premium cannot decline because of market loss. Standard on MYGAs and FIAs. Not standard on variable annuities (available only via optional rider).

A Qualified Longevity Annuity Contract. A DIA funded with qualified retirement money (IRA, 401(k)) that meets IRS rules for exclusion from required minimum distribution calculations.

An annuity funded with pre-tax retirement money (IRA, 401(k), 403(b), 457(b)). Withdrawals are fully taxable as ordinary income.

A payout option that returns any unpaid premium to beneficiaries if the annuitant dies before the carrier has paid out the full premium. Two variants: cash refund (lump sum) and installment refund (continued payments).

Regulation Best Interest. An SEC rule requiring broker-dealers to act in the best interest of retail customers when recommending securities, including variable annuities.

A measure of an insurance carrier's capital relative to the risks it underwrites. State regulators require carriers to maintain RBC above defined thresholds. Low RBC ratios trigger regulatory action.

Required Minimum Distribution. A mandatory annual withdrawal from tax-deferred retirement accounts beginning at age 73 (rising to 75 in 2033 under SECURE 2.0).

An IRA funded with after-tax contributions. Qualified withdrawals are tax-free. Not subject to RMDs during the original owner's lifetime.

A financial strength or credit rating issued by S&P Global Ratings. Scale: AAA, AA+, AA, AA-, A+, A, A-, BBB+, BBB, BBB- (Investment grade), BB+ and below (Speculative grade).

The Securities and Exchange Commission. Federal regulator of securities. Variable annuities are SEC-registered securities and require an SEC-approved prospectus.

A single person holding full ownership of an annuity contract.

A Single Premium Immediate Annuity. A contract that converts a single premium into guaranteed periodic income beginning within 12 months of issue.

An annual deduction from the index return before any cap is applied on an indexed annuity. Also called margin or asset fee.

A state-level organization that provides limited coverage to consumers if a life insurance carrier becomes insolvent. Coverage limits vary by state, typically $100,000 to $500,000 per contract.

The funds a life insurance carrier is required by state law to hold to support future contract obligations. Calculated under conservative actuarial assumptions defined by state insurance regulators.

A pooled investment option inside a variable annuity, structured similarly to a mutual fund. Each subaccount has its own investment objective, manager, and annual fund expense.

A regulatory standard requiring that an annuity recommendation be suitable for the consumer's financial situation, needs, and objectives. Documented through a suitability questionnaire.

A penalty deducted from withdrawals that exceed the free withdrawal allowance during the surrender period. The charge declines each year and reaches 0% at the end of the surrender period.

The number of years during which a surrender charge applies on a deferred annuity. Typical ranges: 3 to 10 years on MYGAs, 5 to 14 years on FIAs, 5 to 9 years on variable annuities.

A tax treatment where growth inside an account is not taxed annually and is instead taxed only when withdrawn.

An older deferred annuity structure where the consumer receives one (lower) value on surrender and a different (higher) value only if they annuitize. Largely discontinued in current product offerings due to consumer-protection concerns.

An annuity whose value moves with investments in subaccounts. Variable annuities are registered as securities and require a prospectus.

A schedule that defines when premium bonuses become fully owned by the contract holder. A non-vested bonus may be partially or fully forfeited on early surrender.