The words in your contract, defined by someone not selling you one.
Seventy-four terms, written for the person holding a contract rather than the person studying for an exam. Every definition links to the guide that covers it in full, and several say plainly which numbers are your money and which are bookkeeping figures that only look like it.
1035 exchange
A tax-free exchange of one annuity contract for another under Internal Revenue Code Section 1035, preserving basis and deferral. It does not waive the old contract's surrender charge, and it can start a new one.
1035 exchanges explained →1099-R
The tax form reporting annuity, pension, and retirement distributions. Receiving one does not always mean tax is owed — rollovers and 1035 exchanges generate the form with little or no taxable amount.
Form 1099-R explained →72(t)
The Internal Revenue Code provision permitting penalty-free early withdrawals through substantially equal periodic payments. The schedule, once started, generally cannot be broken without retroactive penalties.
Rule 72(t) explained →Accumulation phase
The period in a deferred annuity between paying the premium and starting income. Interest credits during this phase; there are no payments out, and surrender charges usually apply throughout it.
Deferred annuities →AM Best rating
A financial strength opinion on an insurer's ability to pay claims, on a 13-point scale from A++ down to D. It is the single most useful number about any annuity carrier — and it expires, which is why every rating on this site carries a date.
AM Best ratings explained →Annuitant
The person whose life measures the contract. Lifetime payouts are priced on the annuitant's age and gender, and on some contracts their death triggers the death benefit. The annuitant is not necessarily the owner and has no right to surrender.
Annuitant vs owner vs beneficiary →Annuitization
Converting a contract's value into a stream of payments under its settlement options. The account value ceases to exist and the decision is generally permanent — which is exactly why the payout option deserves more thought than the purchase did.
Annuitization explained →Annuity
A contract with an insurance company: you pay premium, and the company promises payments — either now or later, for a set term or for life. The guarantee is the insurer's promise, backed by its claims-paying ability and your state guaranty association.
Annuity types explained →Annuity date
The contract date on which income payments are scheduled to begin. Also called the annuity starting date. Most deferred contracts set a maximum annuity date — often in your eighties — that triggers a decision rather than a forced conversion.
Annuitization explained →Beneficiary
The person or entity who receives the death benefit. A beneficiary holds no rights while the owner lives, cannot surrender the contract, and can be disqualified from spousal continuation by the addition of a co-beneficiary.
Annuity death benefits →Benefit base
A bookkeeping figure used to calculate income rider payments. It is not your money. It cannot be withdrawn, is not a death benefit on most contracts, and typically grows at a guaranteed roll-up rate that has no relationship to your actual account value.
GLWB riders explained →Book value
A contract that returns account value minus only the surrender charge, with no market value adjustment. Simpler and rate-risk-free for you, and priced accordingly with a lower crediting rate.
Market value adjustment →Cap rate
A ceiling on the credit an indexed annuity pays in a term, regardless of how far the index rises. A 9% cap credits 9% whether the index gained 12% or 40%. Caps are usually declared annually and can be reset down to a contractual minimum.
Participation rates & caps →Cash refund
A payout option that guarantees total payments at least equal the premium. If the annuitant dies early, the balance is paid to beneficiaries in a lump sum. It costs a smaller monthly payment than life-only.
Immediate annuities (SPIA) →Claims-paying ability
The insurer's capacity to meet its contractual obligations. Every annuity guarantee rests on it, which is why the carrier's balance sheet matters more than the product's features.
Carriers by rating tier →Comdex
A composite score from 1 to 100 that ranks an insurer against all other rated insurers by averaging its ratings across agencies. It is a percentile, not a grade — a Comdex of 90 means the carrier outranks 90% of rated companies.
AM Best ratings explained →Commission
What the selling agent is paid, typically by the carrier out of its own margin rather than deducted from your premium. Commission varies sharply by product type and surrender length, which shapes what you get shown.
How annuity commissions work →Contingent deferred annuity (CDA)
A lifetime income guarantee sold separately from any annuity account. For an ongoing fee, an insurer promises income if a portfolio you hold elsewhere is depleted by covered withdrawals — the rider concept, unbundled.
DIAs, QLACs & CDAs →Cost basis
The after-tax money you put into a non-qualified annuity. Basis returns to you tax-free; everything above it is taxable gain. Qualified annuities usually have no basis, which is why every dollar is taxable coming out.
Qualified vs non-qualified →Crediting method
The formula that turns index movement into interest on an indexed annuity. Annual point-to-point, monthly averaging, monthly sum, and multi-year point-to-point all measure the same index differently and pay differently.
Crediting methods compared →Death benefit
What passes to beneficiaries when the owner or annuitant dies. On most deferred contracts it is the account value, paid without surrender charge or market value adjustment. Annuities receive no step-up in basis, so untaxed gain passes as ordinary income.
Annuity death benefits →Deferred annuity
Any annuity with an accumulation period before payments begin. This is the majority of contracts sold — MYGAs, fixed indexed annuities, variable annuities, and deferred income annuities are all deferred.
Single premium deferred annuities →Deferred income annuity (DIA)
A contract where premium is paid now and lifetime income begins at a chosen future date. Longer deferral buys a larger payment per dollar, because the insurer expects to pay for fewer years.
Deferred income annuities →Exclusion ratio
The fraction of each annuitized payment treated as tax-free return of your basis. Fixed at issue, it applies until basis is fully recovered, after which payments are fully taxable. It is the friendliest tax treatment an annuity offers.
How annuities are taxed →Fixed annuity
A contract crediting a rate set by the insurer, with principal protected from market loss. What it excludes — participation in equity gains — is precisely what funds the guarantee.
Annuity types explained →Fixed indexed annuity (FIA)
A fixed annuity whose interest is linked to an index rather than declared directly. Principal is protected, a bad index year credits zero, and the upside is limited by a cap, participation rate, or spread.
How FIA crediting works →Free withdrawal
The amount you can take each year without a surrender charge, commonly around 10% of value. It is usually the cheapest liquidity a deferred contract offers and is generally exempt from any market value adjustment too.
Annuity surrender charges →Free-look period
A window after delivery — commonly 10 to 30 days depending on state — during which you can cancel the contract and get your money back. It starts when the contract arrives, not when you signed the application. Read the issued contract during it.
Annuity scams and red flags →General account
The insurer's own investment portfolio, which backs fixed and indexed annuity guarantees. Your money is not segregated; you are relying on the company's balance sheet, which is why its rating matters.
AM Best ratings explained →GLWB
Guaranteed lifetime withdrawal benefit. A rider guaranteeing you can withdraw a set percentage for life without annuitizing — the account stays yours, and if markets deplete it the carrier keeps paying. Charged annually, usually against the benefit base.
GLWB riders explained →GMIB
Guaranteed minimum income benefit. A largely legacy rider guaranteeing a minimum lifetime income if you annuitize after a waiting period. Old GMIBs often carry annuitization factors the current market cannot match, which is why carriers offer to buy them back.
GMIB vs GLWB →Group annuity contract
One master contract between an insurer and an institution, with individuals holding certificates. The structure behind most pension risk transfers and many stable value funds.
Group annuity contracts →Guaranteed minimum interest rate
The floor rate an insurer must credit under the contract, regardless of what it declares currently. On indexed contracts the equivalent is a guaranteed minimum cap or participation rate — often far below the first-year figure that sold the contract.
MYGA explained →Guaranty association
The state body that continues annuity payments if an insurer becomes insolvent, up to a statutory limit. Coverage follows your state of residence, and that limit is the number that should size your premium.
Find your state association →Immediate annuity (SPIA)
A single premium converted into income beginning within one payment period. There is no accumulation phase and generally no account value — you have exchanged a sum for a payment stream.
Immediate annuities explained →Income rider
An optional benefit, purchased for an annual fee, guaranteeing lifetime income from a deferred contract. GLWB and GMIB are the two main forms. The fee is charged whether or not the guarantee is ever used.
GLWB riders explained →Index
The market benchmark an indexed annuity tracks. Note that FIA credits use the price index, excluding dividends — and many contracts now use proprietary volatility-controlled indices that move less by design.
Participation rates & caps →Issuing company
The legal insurance entity whose name appears on the contract — frequently not the brand on the brochure. Your guarantee, your rating, and your guaranty coverage all attach to this entity, not the marketing name.
Carrier research →Joint and survivor
A payout option paying while either of two people lives, commonly at 100%, 75%, or 50% of the original amount after the first death. Smaller payments than single life, because the expected paying period is longer.
Payout options →Life only
A payout option paying for as long as the annuitant lives and stopping at death, with nothing to heirs. It produces the largest payment per premium dollar, and carries the largest early-death risk.
Payout options →LIFO
Last in, first out. The ordering rule for withdrawals from deferred non-qualified annuities issued after August 1982: taxable gain comes out first, tax-free basis last. It is the opposite of how most people assume withdrawals work.
How annuities are taxed →Living benefit
Any rider paying a benefit while you are alive rather than at death — income riders on annuities, accelerated benefits on life policies. The phrase covers several different products, so ask which contractual rider is meant.
GLWB riders explained →Market value adjustment (MVA)
An adjustment to early surrender proceeds based on how interest rates have moved since issue. Rates up means a negative adjustment on top of the surrender charge; rates down means a positive one. Usually waived at death, annuitization, and maturity.
Market value adjustment explained →Mortality and expense charge (M&E)
An annual fee on variable annuities covering the insurer's mortality guarantees and expenses, charged against account value. It sits on top of underlying fund expenses and any rider fees.
Variable annuity pros and cons →Mortality credits
The yield produced when premiums of annuitants who die early fund larger payments for those who live. No portfolio can replicate it, because no portfolio may keep a dead investor's money. It is what makes lifetime income work.
Deferred income annuities →MYGA
Multi-year guaranteed annuity. A fixed rate guaranteed for a fixed term, most often three to ten years — the closest annuity equivalent to a CD, with different tax treatment and a different backstop.
MYGA explained →NAIC
The National Association of Insurance Commissioners, the standard-setting body for state insurance regulators. Its Consumer Insurance Search returns complaint records, licensing, and financial data by company.
Verification sources →Non-qualified annuity
An annuity funded with after-tax money. Only the gain is taxable on withdrawal, your basis returns tax-free, and no lifetime required distributions apply.
Qualified vs non-qualified →Nonforfeiture value
The guaranteed minimum a surrendering owner must receive, required by state law. It ensures walking away forfeits the surrender charge at most — never the protected value beneath it. It is printed in the contract's guaranteed values table.
Annuity surrender charges →Owner
The person who controls the contract: funding, withdrawals, surrender, beneficiary changes — and who owes the tax on gains. Surrender authority sits with the owner alone, not the annuitant or beneficiary.
Annuitant vs owner vs beneficiary →Participation rate
The share of an index's gain credited to your contract. A 45% participation rate on a 12% index year credits 5.4%. Unlike a cap it scales with the gain, so it favours large up years.
Participation rates & caps →Payout phase
The period during which the contract pays income. Sometimes called the distribution or annuity phase. An immediate annuity is the payout phase purchased on its own.
Annuitization explained →Period certain
A payout guaranteeing a fixed number of payments regardless of survival, with any remainder going to beneficiaries. It is the one payout whose math is pure arithmetic, which is why our tables can print it exactly.
Payout tables →Point-to-point
A crediting method comparing the index on two dates and ignoring everything in between. Annual point-to-point is the most common design; multi-year versions stretch the window and usually pay richer terms for the longer lock.
Crediting methods compared →Present value
What a stream of future payments is worth today at a given discount rate. It underlies annuity pricing, pension buyout offers, and every payment-purchase offer you will ever receive.
Present value of an annuity →Prospectus
The SEC-filed document for a variable annuity or RILA, stating fees, caps, and surrender terms without a sales layer. Fixed and indexed annuities are not SEC-registered and have no prospectus — that is normal, not a warning.
Search SEC EDGAR →QLAC
Qualifying longevity annuity contract. A deferred income annuity inside an IRA or plan whose value is excluded from required minimum distribution calculations until payments begin, as late as age 85. Premiums are capped by statute.
QLACs explained →Qualified annuity
An annuity funded with retirement-plan money — IRA, 401(k), or 403(b). Withdrawals are generally fully taxable and required minimum distributions apply, because the money was never taxed going in.
Qualified vs non-qualified →Rider
An optional contract addition, almost always for an annual fee: income riders, death benefit enhancements, long-term care and nursing home waivers. Every rider has a cost and a set of guaranteed terms distinct from its current ones.
Income riders compared →RILA
Registered index-linked annuity. Index-linked growth with a defined buffer or floor absorbing part of a loss — not all of it. Higher caps than a fixed indexed annuity are the price of accepting some downside.
RILA review →RMD
Required minimum distribution. The annual amount that must be withdrawn from qualified accounts once you reach the applicable age. Non-qualified annuities have no lifetime RMD; a QLAC is the one structure that reduces them.
Qualified vs non-qualified →Roll-up rate
The guaranteed growth rate applied to an income rider's benefit base — often 5% to 7% compound. It grows a calculation figure, not spendable money, and stops at a stated age or year count.
GLWB riders explained →Separate account
The segregated investment account holding variable annuity subaccounts, legally insulated from the insurer's general creditors. It is why variable annuity market risk sits with you rather than the carrier.
Variable annuity pros and cons →Spread (margin)
A percentage subtracted from an index gain before crediting. With a 2.5% spread, a 12% index year credits 9.5% and a 2% year credits nothing. Spreads favour strong trends and punish choppy markets.
Participation rates & caps →Surrender charge
A penalty for withdrawing more than the free amount during the surrender period, declining by year on a stated schedule. It is one of two exit costs — the market value adjustment is the other.
Annuity surrender charges →Surrender period
The number of years the surrender charge applies, commonly three to ten and occasionally longer. It should match the rate guarantee period; a contract guaranteeing five years with a ten-year schedule is asking a question worth answering.
Annuity surrender charges →Systematic withdrawal
Taking scheduled withdrawals from a deferred contract without annuitizing. It preserves the account, the death benefit, and your flexibility — and guarantees nothing about the money lasting.
Annuitization explained →Tax deferral
Growth untaxed until withdrawn. It is the annuity's headline feature, and it is redundant inside an IRA or 403(b), which already defer. A qualified annuity has to justify itself on guarantees instead.
Qualified vs non-qualified →Trigger rate
A crediting design paying a flat declared rate for any non-negative index result. It wins in flat and slightly-up years and forfeits every rally.
Crediting methods compared →Variable annuity
An annuity whose value fluctuates with investment subaccounts you select. Market risk sits with you, it is regulated as a security, and it carries the industry's deepest fee stack.
Variable annuity pros and cons →Volatility-controlled index
A proprietary index that shifts between equities and cash to hold a target volatility. Its dampened movement makes options cheap, which is how carriers advertise participation rates above 100% — on an index engineered to move less.
Participation rates & caps →Waiver (nursing home / terminal illness)
A contract provision waiving surrender charges and any market value adjustment if you enter a nursing home or are diagnosed terminally ill. Terms and waiting periods vary widely; it is worth confirming before you need it.
Annuity surrender charges →Every definition here links to the guide that covers it properly — with the math, the trade-offs, and what to ask before you sign. If the term you are looking at is in a contract someone has put in front of you, send us the contract instead. We will read the whole thing and tell you what it actually does.
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