Annuities Language Glossary

THE ALLIANCE FOR LIFETIME INCOME is

a non-profit organization committed to educating consumers about the value and importance of protected lifetime income through annuities. Part of our commitment includes making the language of annuities simpler and more transparent.

We realize that annuities, like most other financial products, can be difficult to understand, which is why we’ve created a Language Glossary to help demystify some of the language used when describing annuities. We believe reducing this complexity will help you make better decisions about annuities, which can lead to better outcomes in your retirement planning.

This is version I of the glossary, which we expect to refine and expand in the future to include additional terms and language.

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This glossary is intended to provide a general summary, in non-technical terms, of certain concepts relating to annuities. It is not intended to provide investment, legal or tax guidance, and should not be relied upon as such. You should consult with a financial professional prior to making any investment decisions.

This glossary and any documents transmitted with it contain confidential, proprietary or otherwise protected information and is being distributed solely by member firms of the Alliance for Lifetime Income (the “Alliance”), their duly authorized employees and agents and financial advisors and other professionals who work with member firms of the Alliance (collectively, the “Authorized Distributors”).

These materials have been provided to you by an Authorized Distributor solely for your personal use. You are not authorized to distribute this to anyone else except for direct family members and financial, legal, accounting or other professionals that are advising you. If you received these materials from anyone who is not an Authorized Distributor, reliance upon these materials is strictly prohibited, and we ask that you immediately destroy all copies of these materials in your possession and delete any attachment containing these materials from your system.

A


Account value
The amount of money in the annuity.

Simpler term: Account balance

Related term: Contract value

Accumulation phase
The period that you are allowing your money the potential to grow. (Some annuities allow you to add more money over time.)

Simpler term: Growth stage

Related term: Growth period

Advisor
A qualified person who can help you understand your options and make financial decisions to work toward your financial goals.

Simpler term: Financial professional

Related terms: Financial advisor, Financial consultant

Annuitant
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.)

Simpler term: Annuity owner

Annuitize
When you turn your current account balance into a series of periodic income payments, either for a specific period of time or for your whole life.

Annuity
A financial product that can offer protected lifetime income and even potentially grow your money.

Appetite for risk
The level of market risk you’re comfortable with.

Simpler term: Risk comfort level

Related terms: Risk tolerance, Degree of certainty, Risk appropriateness, Investor confidence

B


Beneficiary
The person you designate to receive any remaining account balance or income payments should you pass away.

Benefit
A feature that can provide benefits or protection to you or your beneficiaries at an additional cost.

Simpler term: Optional benefit

Related terms: Rider, Waiver, Option

Benefit to your heirs
A benefit that pays your beneficiary the remaining account balance or income should you pass away.

Simpler term: Beneficiary benefit

Related terms: Death benefit, Legacy benefit, Legacy, Legacy protection benefit, Family protection

Bonus
The ability to permanently adjust your income based on a pre-set guaranteed growth rate. This guaranteed growth rate is periodically applied to your benefit base (which is your income base plus any additional guaranteed growth increases), which permanently increases the benefit amount you receive.

Simpler term: Guaranteed growth

Related term: Roll-up

C


Cap
The maximum amount your annuity may be able to earn at the end of a selected time period. You choose the time period that’s best for you from a set of available options.

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

Simpler term: Fee or Cost

Related terms: Price, Commission

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

Simpler term: Joint income option

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

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

Simpler terms: Fee or Cost

Related terms: Price, Charge

Contract value
The amount of money in the annuity.

Simpler term: Account balance

Related term: Account value

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

Simpler terms: Cost or Fee

Related terms: Price, Charge, Commission

Covering your [essentials, basic needs, non-negotiables]
Financial priorities that impact the objectives you set for how to save or spend your money during important life stages.

Simpler term: Financial needs and goals

Related terms: Retirement goals, Life priorities, Needs and wants, Saving for retirement

D


Death benefit
A benefit that pays your beneficiary the remaining account balance or income should you pass away.

Simpler term: Beneficiary benefit

Related terms: Legacy benefit, Benefit to your heirs, Legacy, Legacy protection benefit, Family protection

Decumulation phase
The point you start receiving income from your annuity.

Simpler term: Income stage

Related terms: Distribution phase, Spending phase

Deferral bonus
A bonus amount that could potentially be added to your annuity for each year you wait to take income. This allows for the annuity to remain in the stage where growth is possible. Typically, this bonus is added each year, up to a certain age.

Deferred annuity
A type of annuity that delays payments until you choose to receive them, while providing an opportunity for growth or income during the deferral period. Payments can be installment or lump-sum.

Degree of certainty
The level of market risk you’re comfortable with.

Simpler term: Risk comfort level

Related terms: Risk tolerance, Appetite for risk, Risk appropriateness, Investor confidence

Distribution phase
The point you start receiving income from your annuity.

Simpler term: Income stage

Related terms: Decumulation phase, Spending phase

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

E


Earnings sensitive adjustment
Additional income received on top of the guaranteed amount, or on top of any other permanent income increase. This additional income is based on the market performance rate, and allows you to add earnings to the amount of otherwise permissible withdrawals. This gives you the potential to take greater withdrawals and receive the same after-tax withdrawal amount annually.

Simpler term: Bonus income increase

F


Family protection
A benefit that pays your beneficiary the remaining account balance or income should you pass away.

Simpler term: Beneficiary benefit

Related terms: Death benefit, Legacy benefit, Benefit to your heirs, Legacy, Legacy protection benefit

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

Simpler terms: Fee or Cost

Related terms: Charge, Price, Commission

Fiduciary
A qualified financial professional who is required to help you make financial decisions in your best interest. (A fiduciary is not the only type of financial professional required to help you make financial decisions in your best interest. Certain non-fiduciaries must also comply with best-interest requirements.)

Financial advisor
A qualified person who can help you understand your options and make financial decisions to work toward your financial goals.

Simpler term: Financial professional

Related terms: Advisor, Financial consultant

Financial consultant
A qualified person who can help you understand your options and make financial decisions to work toward your financial goals.

Simpler term: Financial professional

Related terms: Financial advisor, Advisor

Financial empowerment
The ability to cover your financial needs and reach your financial goals.

Simpler term: Financial security

Related terms: Financial independence, Financial future

Financial future
The ability to cover your financial needs and reach your financial goals.

Simpler term: Financial security

Related terms: Financial empowerment, Financial independence

Financial independence
The ability to cover your financial needs and reach your financial goals.

Simpler term: Financial security

Related terms: Financial empowerment, Financial future

Financial priorities
Financial priorities that impact the objectives you set for how to save or spend your money during important life stages.

Simpler term: Financial needs and goal

Related terms: Retirement goals, Life priorities, Needs and wants, Saving for retirement, Covering your [essentials, basic needs, non-negotiables]

Financial professional
A qualified person who can help you understand your options and make financial decisions to work toward your financial goals.

Related terms: Financial advisor, Advisor, Financial consultant

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

Simpler term: Fixed rate account

Fixed annuity
An annuity that delivers 100% protection from market downturns with the potential for earned interest. Note that for a deferred fixed annuity, there is 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.

G


Growth period
The period that you are allowing your money the potential to grow. (Some annuities allow you to add more money over time.)

Simpler term: Growth stage

Related term: Accumulation phase

*Guaranteed lifetime income
Income that can last your whole life — and potentially go to your beneficiaries.

Simpler term: Protected lifetime income

*The extent to which Protected Lifetime Income is guaranteed will depend upon the claims-paying ability of the insurer that issues the annuity.

I


Immediate annuity
An annuity that begins paying out guaranteed income within one year after the date of purchase, either for life or for a selected time period.

Income base
The amount that the annuity owner can withdraw money against.

Related term: Withdrawal base

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

Simpler term: Joint income option

Related terms: Joint option, Spousal option, Co-owner option, Joint guaranteed lifetime withdrawal benefit, Joint protected lifetime withdrawal benefit

Income stage
The point you start receiving income from your annuity.

Related terms: Distribution phase, Decumulation phase, Spending phase

Index participation rate
For some indexed annuities, if the underlying index value increases, you receive a portion of that increase. This is called 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 (80% of the gain).

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

Simpler term: Annuity investment options

Related term: Subaccounts

Investor confidence
The level of market risk you’re comfortable with.

Simpler term: Risk comfort level

Related terms: Risk tolerance, Appetite for risk, Degree of certainty, Risk appropriateness

J


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

Simpler term: Joint income option

Related terms: Joint option, Spousal option, Income for two, Co-owner option, Joint protected lifetime withdrawal benefit

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

Simpler term: Joint income option

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

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

Simpler term: Joint income option

Related terms: Joint option, Spousal option, Income for two, Co-owner option, Joint guaranteed lifetime withdrawal benefit

L


Legacy
A benefit that pays your beneficiary the remaining account balance or income should you pass away.

Simpler term: Beneficiary benefit

Related terms: Death benefit, Legacy benefit, Benefit to your heirs, Legacy protection benefit, Family protection

Legacy benefit
A benefit that pays your beneficiary the remaining account balance or income should you pass away.

Simpler term: Beneficiary benefit

Related terms: Death benefit, Legacy, Benefit to your heirs, Legacy protection benefit, Family protection

Legacy protection benefit
A benefit that pays your beneficiary the remaining account balance or income should you pass away.

Simpler term: Beneficiary benefit

Related terms: Death benefit, Legacy benefit, Benefit to your heirs, Legacy, Family protection

Life changes
Where you are in terms of your financial priorities and needs; for instance, growing your money or drawing from your money later in life.

Simpler term: Life stage

Related terms: Retirement, Life transition

Life priorities
Financial priorities that impact the objectives you set for how to save or spend your money during important life stages.

Simpler term: Financial needs and goals

Related terms: Retirement goals, Needs and wants, Saving for retirement, Covering your [essentials, basic needs, non-negotiables]

Life transition
Where you are in terms of your financial priorities and needs; for instance, growing your money or drawing from your money later in life.

Simpler term: Life stage

Related terms: Retirement, Life changes

Liquidity risk
The risk that your money will need to be accessed sooner than anticipated, which could result in penalties or impact performance.

Simpler term: The risk you won’t be able to access your money when you need it

Living benefits
Optional benefits available for an additional cost that can offer you guarantees, like a minimum level of income for life.

Simpler term: Guaranteed income benefits

Longevity risk
The chance that you may live longer than your income will last.

Simpler term: The risk you won’t have enough money to last

M


Market risk
As with most investments, there is the chance you could lose money because of market downturns.

Market value adjustment
You can permanently increase the amount in the annuity you can withdraw money from (your 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.

Simpler term: Income base lock-in

Related terms: Market value step up, Market value increase, Permanent income base increase

Market value increase
You can permanently increase the amount in the annuity you can withdraw money from (your 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.

Simpler term: Income base lock-in

Related terms: Market value step up, Market value adjustment, Permanent income base increase

Market value step up
You can permanently increase the amount in the annuity you can withdraw money from (your 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.

Simpler term: Income base lock-in

Related terms: Market value adjustment, Market value increase, Permanent income base increase

Market volatility
The way stocks, bonds and other market investments change in value, sometimes very quickly. This market movement may affect the value of your annuity or other investments. Some annuities can protect your income even when the markets go down.

Simpler term: Market ups and downs

Money paid into a contract
For most annuity types, this is the money you put into the annuity.

Simpler term: Annuity contribution

Related terms: Premium, Purchase payments

N


Needs and wants
Financial priorities that impact the objectives you set for how to save or spend your money during important life stages.

Simpler term: Financial needs and goals

Related terms: Retirement goals, Life priorities, Saving for retirement, Covering your [essentials, basic needs, non-negotiables]

O


Option
A feature that can provide benefits or protection to you or your beneficiaries at an additional cost.

Simpler term: Optional benefit

Related terms: Rider, Benefit, Waiver

P


Payment(s)
Amount of income paid to you with a set frequency.

Simpler term: Income payments

Related term: Payout

Payout
Amount of income paid to you with a set frequency.

Simpler term: Income payments

Related term: Payment(s)

Period certain
A payout option that allows the annuity owner to choose when and how long to receive payments, which beneficiaries may also be able to receive.

Permanent income base increase
You can permanently increase the amount in the annuity you can withdraw money from (your 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.

Simpler term: Income base lock-in

Related terms: Market value step up, Market value adjustment, Market value increase

Premium
For most annuity types, this is the money you put into the annuity.

Simpler term: Annuity contribution

Related terms: Purchase payments, Money paid into a contract

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

Simpler terms: Fee or Cost

Related terms: Charge, Commission

Product
What you use to pursue your specific financial goal.

Simpler terms: Product or Strategy

Related terms: Vehicle, Solution

*Protected Lifetime Income
Income that can last your whole life — and potentially go to your beneficiaries.

Related term: Guaranteed lifetime income

*The extent to which Protected Lifetime Income is guaranteed will depend upon the claims-paying ability of the insurer that issues the annuity.

Purchase payments
For most annuity types, this is the money you put into the annuity.

Simpler term: Annuity contribution

Related terms: Premium, Money paid into a contract

Q


Qualified or non-qualified deduction
When you purchase an annuity, you can choose to have taxes deducted either when you receive the money from your annuity (qualified) or when you invest the money in your annuity (non-qualified).

Simpler term: Funded with pre-tax or post-tax dollars

R


Retirement
Where you are in terms of your financial priorities and needs; for instance, growing your money or drawing from your money later in life.

Simpler term: Life stage

Related terms: Life transition, Life changes

Retirement goals
Financial priorities that impact the objectives you set for how to save or spend your money during important life stages.

Simpler term: Financial needs and goals

Related terms: Life priorities, Needs and wants, Saving for retirement, Covering your [essentials, basic needs, non-negotiables]

Rider
A feature that can provide benefits or protection to you or your beneficiaries at an additional cost.

Simpler term: Optional benefit

Related terms: Benefit, Waiver, Option

Risk appropriateness
The level of market risk you’re comfortable with.

Simpler term: Risk comfort level

Related terms: Risk tolerance, Appetite for risk, Degree of certainty, Investor confidence

Risk tolerance
The level of market risk you’re comfortable with.

Simpler term: Risk comfort level

Related terms: Risk appropriateness, Appetite for risk, Degree of certainty, Investor confidence

Risk-adjusted returns
An estimated measure of the returns relative to the amount of risk involved.

Simpler term: Estimated performance

Roll-up
The ability to permanently adjust your income based on a pre-set guaranteed growth rate. This guaranteed growth rate is periodically applied to your benefit base (which is your income base plus any additional guaranteed growth increases), which permanently increases the benefit amount you receive.

Simpler term: Guaranteed growth

Related term: Bonus

S


Saving for retirement
Financial priorities that impact the objectives you set for how to save or spend your money during important life stages.

Simpler term: Financial needs and goals

Related terms: Retirement goals, Life priorities, Needs and wants, Covering your [essentials, basic needs, non-negotiables]

Solution
What you use to pursue your specific financial goal.

Simpler terms: Strategy or Product

Related term: Vehicle

Spending phase
The point you start receiving income from your annuity.

Simpler term: Income stage

Related terms: Distribution phase, Income stage, Decumulation phase

Spousal continuation
An option to transfer ownership or continuation of your guaranteed income to your spouse in the event you pass away.

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

Simpler term: Joint income option

Related terms: Joint option, Income for two, Co-owner option, Joint guaranteed lifetime withdrawal benefit, Joint protected lifetime withdrawal benefit

Strategy
What you use to pursue your specific financial goal.

Simpler terms: Strategy or Product

Related terms: Vehicle, Solution

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

Simpler term: Annuity investment options

Related term: Investment divisions

Surrender
An amount you pay if you withdraw a certain amount of money from your annuity before the end of a set time period. For example, your annuity may allow you to withdraw up to 10% of your income base within a period of time. If you withdraw more than 10% during this time, you would be charged a fee.

Simpler term: Early withdrawal fee

Related terms: Surrender charge, Withdrawal

Surrender charge
An amount you pay if you withdraw a certain amount of money from your annuity before the end of a set time period. For example, your annuity may allow you to withdraw up to 10% of your income base within a period of time. If you withdraw more than 10% during this time, you would be charged a fee.

Simpler term: Early withdrawal fee

Related terms: Surrender, Withdrawal

V


Variable annuity
A financial product that offers the potential to grow your money through various market investment options and that can provide income during retirement. These annuities may offer optional benefits, available at an additional cost, that can protect your lifetime income from market downturns, combined with potential growth.

Vehicle
What you use to pursue your specific financial goal.

Simpler terms: Strategy or Product

Related term: Solution

W


Waiver
A feature that can provide benefits or protection to you or your beneficiaries at an additional cost.

Simpler term: Optional benefit

Related terms: Rider, Benefit, Option

Withdrawal
An amount you pay if you withdraw a certain amount of money from your annuity before the end of a set time period. For example, your annuity may allow you to withdraw up to 10% of your income base within a period of time. If you withdraw more than 10% during this time, you would be charged a fee.

Simpler term: Early withdrawal fee

Related terms: Surrender, Surrender charge

Withdrawal base
The amount that the annuity owner can withdraw money against.

Simpler term: Income base

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