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Accumulated Value: the full value of the annuity contract; principal plus gain.
Annuitization: waiving access to your accumulated dollars in return for guaranteed payments.
Annuitization Factor: the rate per thousand used to determine the periodic payout of an annuity.
Annuity: a contract designed to accumulate premiums plus interest prior to maturity, then distribute the proceeds through a series of regular payments.
Back-end Load: any fees deducted when the contract is terminated; i.e. surrender charges.
Bailout: an interest protection provision guaranteeing the client liquidity, without penalty, if the renewal interest rate is ever declared below the stated bailout rate; this penalty-free surrender period is usually limited to 30 days from the date of notice.
Beneficiary: the party who receives proceeds (in most annuity contracts) if owner or annuitant dies.
Commuted Value: the present value of future guaranteed payments.
Corporate-owned Annuity: an annuity owned by a corporation or business. The interest is not tax-deferred.
Cost Basis: the original investment in a non-qualified annuity, prior to any transfers of the account; the cost basis is used to determine the tax excludable portion.
Death Benefit: the amount paid to beneficiary upon annuitant's death.
Deferred Annuity: a tax favored annuity account, deferring periodic payments until a later date.
Direct Transfer: a tax-free transfer of qualified funds from one custodian to another custodian.
Exclusion Ratio: the ratio of the tax excludable portion of an annuity payment to the total annuity payment (always non-qualified funds only).
Fixed Annuity: an annuity contract with a guaranteed and projected rate of interest; a current life insurance license is all that is required to sell a fixed annuity.
Flexible Premium: multiple deposits made at regular intervals, or at the clients discretion to fund an annuity contract.
Front-end Load: any fees deducted from the premium, before deposit, i.e. administrative or sales fees.
Guarantee of Principal: provision in some annuity contracts that guarantee owners that they will get their initial premium back if they change their minds shortly after purchase.
Guaranteed Minimum Interest rate: mandated by states that annuity contracts provide some sort of minimum guarantee for life of contract; rates of 3% and 4% are typical.
Immediate
Annuity: a series of periodic payments beginning within
one year of the deposit of funds.
Interest Protection Provision: see bailout.
IRA Rollover: a way to reposition one IRA to another IRA account and defer taxation.
Life Expectancy Retirement Option (LERO): the method of calculating the minimum distribution which must be made each year from a qualified annuity in order to satisfy IRS requirements after age 70 1/2.
Life Only: a settlement option that owner may select upon annuitization. Payments continue for life of annuitant, payments stop when annuitant dies.
Life and 10 Year Certain: a settlement option that owner may select upon annuitization; payments continue for life of annuitant like Life Only option but 10 years of payments are guaranteed.
Life: Installment Refund: a settlement option that owner may select upon annuitization. Payments continue for life of annuitant like Life Only option, but beneficiary may continue to receive payments until insurance company has paid out payments equaling the initial premium.
Nonqualified Annuity: an annuity whose premiums are paid with after-tax dollars. When proceeds are distributed, only the interest portion will be taxable.
Partial Withdrawal: the amount an owner can withdraw from their annuity.
Penalty-Free Withdrawals (Annuity Contracts): a partial withdrawal from the contract value, during the surrender charge period, from which the company will not subtract a surrender charge.
Qualified Annuity: an annuity that is funded with pre-tax contributions. Payments are generally 100% reportable as income in the tax year the payment is received.
Qualified Funds: funds deposited in retirement plans before taxes are deducted (IRA, SEPs, Keogh Plans, etc.). All withdrawals totally taxable.
Section 1035(a) Exchange: the tax-free exchange of one nonqualified annuity contract or life insurance policy for another, generally with a different company (life to life; life to annuity; annuity to annuity).
Serial Issue: multiple annuity contracts, issued by the same company within a twelve month period to the same owner.
Settlement Options: the methods by which the insurer may pay policy proceeds to the annuitant, contract owner, policy owner or beneficiary.
Single Premium: a single deposit made to fund an annuity. Additional premiums cannot be added to this policy.
Split Annuity: combination of two annuities, one immediate annuity and one deferred annuity. Immediate provides guaranteed monthly income for 5, 7, or 10 years on a tax advantaged basis. During the interim, the moneys deposited into the deferred annuity are increasing; the ultimate goal is that the value of the deferred annuity will equal the sum of dollars initially paid into the split annuity.
Surrender Charges: a charge deducted from the accumulated value at the time of full or partial surrender of an annuity contract.
Surrender Value: the value of the annuity contract after surrender charges have been deducted from the accumulated value.
Tax Deferral: major benefit of annuities. Paying taxes later instead of now. Allowing dollars you would normally pay in taxes to stay inside of the annuity to accumulate additional compound interest for the purchaser.
Trust: a written document, creating a legal entity to take over ownership of property, documents, request or other assets on behalf of the grantor.
Trustee: one entrusted with the property of another.
Variable Annuity: an annuity contract in which the account value fluctuate according to market performance; there is no minimum interest rate guarantees, nor projections of future rates; the sale of variable annuities is governed by the Securities and Exchange Commission.
Withdrawal Privileges: usually refers to the right of the owner to make withdrawals from the annuity, without surrender penalty, up to a certain percentage of accumulated value.
John K. Arnold
Florida Health Insurance
Group, Employee Benefits & Individual Health Insurance Specialist
Website Address www.floridahealthinsurance.com
E-Mail:
John K Arnold
Phone: 407-592-0311 (Best number to reach me)
Phone: 407-830-0259
Fax: 407-386-7053
If outside the US, it is best to e-mail as we can respond more
quickly. Thanks.
Let me know how I can help you.