Annuity Glossary

Reference

Definitions for terms you will encounter when researching fixed indexed annuities and MYGAs.

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Accumulation Value: The accumulation value is the total dollar amount in your annuity contract at any given time, reflecting premiums paid plus credited interest minus any applicable charges.
Annual Reset: Annual reset is a crediting method that locks in any index gains at the end of each contract year and resets the starting index value, so future losses cannot erase previously credited interest.
Annuitization: Annuitization is the process of converting an annuity's accumulated value into a stream of regular income payments that can last for a set period or for the rest of your life.

Beneficiary: A beneficiary is the person or entity you designate to receive the death benefit from your annuity contract when you pass away.

Cap Rate: A cap rate is the maximum percentage of index gain that can be credited to your annuity in a given crediting period, regardless of how much the index actually earned.
Carrier Rating: A carrier rating is a financial strength grade assigned to an insurance company by an independent agency, indicating its ability to meet long-term obligations to policyholders.
Crediting Strategy: A crediting strategy is the method an insurance carrier uses to calculate and apply interest to your fixed indexed annuity based on the performance of a linked market index.

Death Benefit: A death benefit is the amount paid to the designated beneficiary of an annuity when the contract owner dies, typically equal to the accumulation value at the time of death.
Deferred Annuity: A deferred annuity is an insurance contract that accumulates money over time on a tax-deferred basis, with income payments beginning at a future date of your choosing.

Equity Indexed Annuity: An alternative term for fixed indexed annuity that refers to an insurance contract providing principal protection with growth potential tied to market index performance.
Exclusion Ratio: The exclusion ratio determines what portion of each annuity income payment is treated as a tax-free return of your original premium versus taxable earnings.

Fixed Annuity: A fixed annuity is an insurance contract that credits a declared interest rate set by the carrier, providing predictable, guaranteed growth without exposure to market fluctuations.
Flexible Premium Annuity: An annuity that allows you to make additional premium payments after the initial purchase, rather than requiring a single lump sum payment.
Floor Rate: A floor rate is the minimum interest credited to a fixed indexed annuity in any given crediting period, protecting your accumulation value from declining due to index losses.
Free-Look Period: The free-look period is a window of time after purchasing an annuity during which you can cancel the contract and receive a full refund with no penalties.

Guaranteed Annuity Rate: A minimum interest rate that an annuity contract promises to pay, regardless of market performance or economic conditions.
Guaranteed Minimum Income Benefit (GMIB): A guaranteed minimum income benefit (GMIB) is a rider that guarantees a minimum level of lifetime income from an annuity, regardless of the contract's actual accumulated value.
Guaranteed Minimum Withdrawal Benefit (GMWB): A guaranteed minimum withdrawal benefit (GMWB) is a rider that allows you to withdraw a set percentage of an income base for life, regardless of how the contract's accumulation value performs.

Immediate Annuity: An immediate annuity is a contract funded with a lump sum that begins making income payments to the owner within one payment period — typically one month — after purchase.
Income Rider: An income rider is an optional add-on to an annuity that guarantees a lifetime income withdrawal amount, typically based on a separate income base that grows at a declared rate.
Index Annuity: An index annuity is a type of fixed annuity that credits interest based on the performance of a market index, offering upside potential with downside protection through a floor rate.
Inflation Rider: An inflation rider is an optional annuity add-on that increases your income payments over time, typically by a fixed percentage each year, to help offset the impact of rising prices.

Liquidity: Liquidity in the context of annuities refers to how easily and at what cost you can access your money during the contract's surrender period.

Market Value Adjustment (MVA): A market value adjustment is a positive or negative adjustment applied to early surrenders of some annuities, reflecting changes in interest rates since the contract was issued.
Mortality and Expense Fee (M&E): A mortality and expense fee is an annual charge in variable annuities that compensates the insurance carrier for longevity risk and contract guarantees.
Multi-Year Guaranteed Annuity (MYGA): A multi-year guaranteed annuity (MYGA) is a fixed annuity that locks in a set interest rate for a defined term, offering predictable tax-deferred growth with no market risk.

Participation Rate: A participation rate is the percentage of an index's gain that is credited to your fixed indexed annuity, allowing you to share in index growth without full market exposure.
Point-to-Point Crediting: Point-to-point crediting measures the index value at two specific dates — the start and end of a crediting period — and credits interest based on the difference between those values.
Principal Protection: Principal protection in a fixed indexed annuity means your original premium cannot be lost due to market downturns, because your money is not directly invested in the market.

Rider: A rider is an optional add-on to an annuity contract that provides additional benefits or protections, typically for an extra annual fee deducted from the accumulation value.

Spread Fee: A spread fee is an amount subtracted from the linked index's gain before interest is credited to your fixed indexed annuity, serving as an alternative to a cap rate or participation rate.
Surrender Charge: A surrender charge is a fee assessed by the insurance carrier when you withdraw more than the allowed free amount from an annuity before the surrender period has ended.
Surrender Period: The surrender period is the length of time after purchasing an annuity during which withdrawals above the free amount trigger surrender charges.