Glossary of Financial Terms

1035 Exchange
Section 1035 in the Internal Revenue Code that allows for a tax-free exchange of a life insurance or annuity policy for an alternate annuity.

401(k)
Retirement savings plan that allows employees to make tax free contributions to a savings account. Money deposited is not taxed until it is withdrawn.

Accrual
The accumulation of interest earned.

Accumulation Phase
Period of time during which an annuity grows in value before payments are distributed.

Annuitant
The person whose date of birth is used to determine annuity benefits.

Annuity
A contract with an insurance company that provides a systematic, guaranteed schedule of payments.

Annuity Arbitrage
Purchasing an annuity contract to finance the purchase of a life insurance policy.

Annuity Beneficiary
One or more individuals who receive the benefits upon the death of the annuity owner.

Annuity Issuer
The insurance company.

Annuity Owner
Any individual or entity that purchases and controls the annuity contract.

Annuity Rate
The rate guarantee set by the insurance company in the annuity contract.

Basis Point
A unit of measure equal to 1/100 of 1% used to express percentages in finance.

Beneficiary
A beneficiary receives the payments promised to be paid by the insurance company in the contract after the death of an annuitant or annuity owner.

Charitable Annuity
A charitable gift in the form of an immediate or deferred annuity.

Contributions
Deposits made to a retirement account.

Death Benefit
A contract provision the owner can use to designate a beneficiary who inherits the remaining annuity payments upon death of the owner.

Fixed Annuity
An annuity contract with a fixed payment amount over a set time period.

Free Look Period
A provision that allows you to cancel the contract and receive a full refund without having to pay surrender charges.

Income Annuity
An annuity contract with guaranteed stream of income.

Indexed Annuity
A fixed annuity that credits interest based on a stock market index.

Lump-Sum Payment
A one-time payment.

Non-Qualified Annuity
An annuity that is purchased with after-tax dollars, i.e., money not contributed to a tax-deferred retirement plan, such as an IRA or a 401(k).

Premium
Part of annuity contract that states the annuity owner will make scheduled payments to keep insurance coverage active.

Principal
The original investment amount.

Rider
A provision added to a contract.

Single Premium Annuity
An annuity that is purchased with a lump-sum payment.

Stock
A type of investment that represents a share, or partial ownership, in a company.

Tax Exemption
The right for individuals and select organizations to exclude all or some of their income from federal or state income tax.

Variable Annuity
An annuity contract whose value is based on the performance of an underlying investment portfolio.