Understanding Annuities: Key Terms Explained
Unlock the meaning behind important annuity terms with our easy-to-follow glossary. Gain the clarity you need to make informed and confident financial decisions.
Accumulation Phase: The period during which the annuity is funded and grows. It’s the time between purchasing the annuity and the start of the payout phase.
Annuity: A financial product typically sold by insurance companies that provides regular payments to an individual over a specified period, often used as a source of retirement income.
Annuitant: The person whose life determines the payout and who will receive the annuity payments.
Annuitization: The process of converting the accumulated value of the annuity into a stream of income payments.
Annuity Owner: The individual who owns the annuity contract and has the rights to the annuity’s benefits.
Beneficiary: A person or entity designated by the annuity owner to receive payments or benefits from the annuity upon the annuitant’s death.
Death Benefit: The amount paid to the beneficiary upon the death of the annuitant or annuity owner, which may include the remaining annuity value or a predetermined sum.
Deferred Annuity: An annuity in which the payout phase is postponed to a future date, allowing the funds to accumulate over time.
Fixed Annuity: An annuity that guarantees a specific payment amount or a minimum interest rate during the accumulation phase.
Guaranteed Lifetime Income: The promise by the annuity issuer to provide income payments for the annuitant’s lifetime or a specified period, regardless of how long the annuitant lives.
Immediate Annuity: An annuity in which the payout phase begins immediately after the initial premium payment.
Indexed Annuity: A type of annuity with returns linked to a specific financial index, offering the potential for higher interest earnings based on market performance while providing downside protection.
Premium: The payment made by the annuitant (the person purchasing the annuity) to the insurance company to buy the annuity.
Payout Phase: The period during which the annuity makes regular payments to the annuitant.
Riders: Optional features or benefits that can be added to an annuity contract, such as inflation protection, enhanced death benefits, or long-term care benefits.
Surrender Period: A specified period after purchasing the annuity during which surrendering or withdrawing funds may incur penalties or charges.
Variable Annuity: An annuity where the payout amount fluctuates based on the performance of underlying investments, such as mutual funds.