Frequently used annuity terms:

Annuitization involves converting your accumulated retirement assets into a series of periodic payments that last for a period of time of your choosing, in accordance with the provisions of the annuity contract.

Deferred Annuities are annuities that can be funded through a single premium or through flexible payments over time. Can potentially help you to accumulate money for retirement, especially over an extended period of time. Your money grows tax deferred, which means you pay no taxes on earnings until you withdraw your money.

Did you know that most fixed annuities have no fees? Over time, the absence of any fees is powerful.

Distribution Period is the period of time, either a specified number of years or lifetime, over which distribution payments are made to the annuitant. Earnings become taxable when the annuitant begins to receive payments. The payout during the distribution period can either be fixed or variable.

Fixed Annuities are annuities that guarantees you a specified rate of interest for a specified amount of time. Offers preservation of your assets and protection from market volatility. There are many types of fixed annuities with varying degrees of complexity.

Flexible Premium Annuities are funded over a period of time, generally years. Allows you to pay premiums of differing amounts (within a stated minimum and maximum) on a set schedule or randomly. Your assets accumulate on a tax-deferred basis and can fund either fixed or variable deferred annuities.

Immediate Annuities These begin payments for life or for a specified amount of time in exchange for your one-time contribution. Regular payments can be received on a monthly, quarterly, semiannual or annual basis. A portion of each payment represents taxable interest, and the other portion is a tax-free return of your principal. These can be great for retirement planning purposes, when maximum income is important.

Premature/Early Withdrawals (Distributions): Withdrawals are reported as income and are subject to ordinary income tax treatment (as opposed to capital gains or dividend income), and if made prior to age 59½, may be subject to an additional 10% federal income tax penalty.  In addition, company imposed surrender charges may apply to certain withdrawals.

Single Premium Annuities: They provide a way to turn a large sum of cash into guaranteed income. For those who have cash from an inheritance, legal settlement, business sale, etc., can fund an immediate or a deferred annuity. For those nearing retirement, who have assets accumulated in a retirement plan or other savings vehicle, can fund an immediate or a deferred annuity.

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Return of Premium Rider: guarantees AT LEAST 100% of what you paid in premium whenever you surrender. For many people, their only concern about making an annuity purchase is the penalty for early surrender. Not all insurance companies offer this valuable feature and most annuity salespeople don’t offer it because they are paid less and commission is vulnerable for several years.

Systematic Withdrawals: allow you to withdraw money from the accumulated value of your contract on a regular schedule – making it an effective way to supplement income either before or after retirement. Systematic withdrawals are also flexible.

Variable Annuities: offer opportunity for asset growth through a variety of investment choices tied to market performance. With their greater opportunity for growth, comes greater risk. Variable annuities are subject to loss of principal.

Withdrawal Charges, Surrender Charges, Surrender Penalties: are charges that typically decreases annually until they reach zero.

Fixed Indexed Annuity With Income Rider: creates guaranteed income for life. The income level grows until you activate the rider and begin taking lifetime income. There are contracts with inflation riders and long term care riders that increase the income payments.

More annuity terms, definitions and frequently asked questions:


Account value

The amount of money in an annuity, working for the owner, before possible surrender charges.

Accumulation phase

The time frame during which the account value has the potential to grow. Also known as growth phase or growth period.


A qualified person who can help annuity buyers understand their options and make financial decisions pertaining to their financial goals and objectives.

Simpler term: Financial professional, Financial advisor, Financial consultant


A person who will receive the income payments from an annuity. (They could be the direct owner of the annuity or another person chosen by the direct owner, and they are the person whose lifetime income the payments are based on).


When the annuity leaves the accumulation phase, turning the current account balance into a series of periodic income payments, either for a set period of time or for life.


A financial product that offers guaranteed lifetime income with the potential of growing the principal.

Risk Appetite 

The level of market risk that is acceptable to annuity owners. Risk comfort level, Risk tolerance, Degree of certainty, Risk appropriateness, Investor confidence.



The person designated to receive any remaining account balance or income payments once the owner is deceased.


A feature that can provide added value or protection to the policyholder and/or beneficiaries, sometimes at an additional cost. Optional benefit, Rider, Waiver

Benefit to heirs

The balance that is paid to a beneficiary, typically the remaining account balance or income upon the annuitant’s death. Beneficiary benefit, Death benefit, Legacy benefit, Legacy, Legacy protection benefit, Family protection

Annuities have decreasing surrender charges that are usually gone in 7-10 years. The purpose of surrender charges is to allow the insurance company to invest in longer term assets, creating better yields for policyholders.



The maximum interest credited to an annuity at the end of a selected time period. The annuity owner will choose the time period that’s best from available options.


The amounts deducted from the contract, which may include setting up the annuity, adding optional benefits, etc.

Simpler term: Fee or Cost


The payment paid into a contract. For most annuities, this is the paid in money.

Simpler term: Premium, purchase payments

Co-owner or Joint income option

An optional benefit that offers guaranteed withdrawals for life for both you and a loved one.

Related terms: Joint option, Spousal option, Income for two, Joint guaranteed lifetime withdrawal benefit, Joint protected lifetime withdrawal benefit


The amount of compensation paid by insurance companies for the sale of annuity products. The compensation is paid by the insurance companies, from its balance sheets, not the assets of the policyholders. 

Contract value, account value or account balance

The amount of money working in the annuity.


Death benefit

A benefit paid to beneficiaries, typically the remaining account balance or income upon death. Legacy benefit, benefit to heirs, legacy protection benefits, family protection


The point you when an annuity ends the accumulation phase and begins to make income payments. Spending phase, income or distribution phase.

Deferral bonus

A bonus amount that may be added to an annuity for each year income is deferred. Typically, this bonus is added each year, up to a certain age.

Deferred annuity

A type of annuity that delays payments until the policy owner chooses to receive them, while providing an opportunity for growth during the deferral period. 

Distribution phase

The point when an annuity begins paying income from an annuity.


Strategically spreading the account value among different types of investments to help reduce the impact of market downturns. Diversification does not guarantee a profit or protection against a loss.


Earnings sensitive adjustment

Additional income received on top of the guaranteed amount, or in addition to any other income increase. This additional income is based on the market performance rate, and allows for additional earnings of otherwise permissible withdrawals. AKA bonus income increase.


Family protection

A benefit that pays the beneficiary the remaining account balance or income upon death. Consumer friendly terms are beneficiary benefit, legacy benefit


The amounts associated with owning an annuity, which may include setting up the annuity, adding optional benefits, etc. Fees can be embedded in the annuity contract or in addition to the premium.


A qualified financial professional who is required to help consumers make financial decisions in their best interest. (A fiduciary is not the only type of financial professional required to make financial decisions in the best interest of their clients. All professionals should comply with best-interest requirements, as a matter of good practice.)

Financial advisor

A qualified person to help consumers understand their options and make financial decisions to work toward their financial goals. Consumer friendly terms include financial professional, advisor, financial consultant.

Financial consultant

A qualified person who does not earn commissions by helping consumers understand their options and make financial decisions to work toward their financial goals.

Fixed account

An account that earns a guaranteed interest rate and is not invested in or tied to the market.

Fixed annuity

A type of annuity that delivers 100% protection from market downturns with potential for earned interest. Many fixed annuities provide the benefit of a guaranteed interest rate, in addition to downside protection and the potential for earned interest.

Fixed indexed annuity

An annuity that guarantees principal protection from market downturns with the potential for growth tied to a market index by guaranteeing no principal loss and limited returns.


Growth period

The period when annuity principal has the potential to grow. (Some annuities allow for additional contributions over time.) More consumer friendly terms include growth stage and accumulation phase.

Guaranteed lifetime income

The payments from an annuity that are payable for life. Unused principal is paid to the contract beneficiaries in most types of annuities.


Immediate annuity

An annuity that begins paying out guaranteed income within one year of the purchase date, either for life or for a selected time period. The payments consist of interest and mortality credits.

Income stage

The point when the annuity owner begins receiving income from the annuity. Related terms: Distribution phase, decumulation phase, spending phase

Index participation rate

For some indexed annuities, when the underlying index value increases, the contract is credited with a portion of that increase based on the participation rate. For example, if the market went up 10% and the annuity’s participation rate was 80%, the annuity would be credited with an 8% return, or 80% of the gain. Participation rates are typically not guaranteed. They are subject to increase or decrease, in most contracts.


Joint option or guaranteed lifetime withdrawal benefit

An optional benefit that offers guaranteed income withdrawals for life, for two people, usually for spouses. More consumer friendly terms include joint income option, spousal option, joint lifetime withdrawal benefit.



A benefit that pays the contract beneficiary the remaining account balance, a predetermined level defined in the contract, or income upon death. Other consumer friendly terms are beneficiary benefits, death benefit, legacy benefit, legacy protection benefit and family benefits.

Liquidity risk

The risk that annuity principal may need to be accessed sooner than anticipated, which could result in penalties or impact performance.

Living benefits

Optional benefits available for an additional cost that can offer guarantees, such as a minimum level of income for life or guaranteed income benefits.

Longevity risk

The chance of outliving one’s wealth and not having enough money to live.


Market risk

Like most investments, this is the chance of losing money due to unforeseen market downturns.

Market value adjustment

Allows for permanent increases to be withdrawn from the income base when the account balance, or total amount of money in the annuity, exceeds a certain level. This may occur on an annual or daily basis, depending on the annuity.

Related terms: Market value increase, permanent income base increase

Market value increase

Allows for a permanent increase from the annuity income base when the account balance, or total amount of money in the annuity, exceeds a certain level. This may occur on an annual or daily basis, depending on the annuity.

Market volatility

Rate at which markets change price. The way stocks, bonds and other market investments change in value. This market movement may affect the value of an annuity or other investments. Some annuities protect against volatility even when the markets go down.



Amount of income paid from an annuity with a set frequency.

Simpler term: Income payments, contract payout

Period certain

A payout option that allows annuity owners to choose when and how long to receive payments, including beneficiaries.


For most annuity types, this is the money paid into the annuity.


The amounts associated with owning an annuity, which may include setting up the annuity, adding optional benefits, etc.


They type of annuity used to pursue specific goals.



A feature that can provide additional benefits or protection to the contract for the owner or their beneficiaries, often at an additional cost.

Risk tolerance

The level of market risk that is acceptable for each annuity owner.



The strategy that is used to pursue specific financial goals.

Simpler terms: Strategy, vehicle or product

Spending phase

The point when the annuity starts making distributions, the decumulation phase

Spousal continuation

An option to transfer ownership or continuation of the guaranteed income to a spouse upon death.

Spousal option

An optional benefit that offers guaranteed withdrawals for life for a spouse. The joint income option


The underlying investment choices available in a variable annuity. These typically include stock, bond and money market funds. The annuity investment options.

Surrender Charge

A penalty that is paid to withdraw a certain amount of money from an annuity before the end of a set time period. For example, the annuity may allow for a withdraw up to 10% of the income base within a period of time. If a withdrawal of more than 10% is taken during this time, there will be a fee imposed.

Simpler term: Early withdrawal fee, surrender charge, withdrawal penalty


Variable annuity

A financial product that offers the potential to grow money through various market investment options and that can provide income during retirement. Some variable annuities offer optional benefits, available at an additional annual cost, that can protect the lifetime income from market downturns.

Please contact me at 561-869-4500 or complete the contact form on this page to schedule a complementary discussion. Or visit me on: https://www.advisorycloud.com/profile/Ted-Bernstein

Annuity glossary, annuity terms, annuity definition, best annuity

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