1035 Exchange
A transaction that may allow one qualifying insurance or annuity contract to be exchanged for another without immediate recognition of gain, if federal tax requirements are met.
Related: Replacement, surrender charge
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Accumulation Value
The value used to track a deferred annuity during its accumulation phase, subject to contract credits, charges, withdrawals, and other provisions.
Related: Cash value, surrender value
Annuitant
The person whose life or age may be used to determine annuity benefits. The annuitant is not always the contract owner.
Related: Owner, beneficiary
Annuitization
The process of converting an annuity value into a series of payments under an income option. The election may be irrevocable, depending on the contract.
Related: Income annuity, payout option
Benefit Base
A value used to calculate certain rider benefits, such as income. It is generally not the amount available for a lump-sum withdrawal.
Related: Income rider, cash value
Cap Rate
A limit on the index-linked interest that may be credited during a stated period under some fixed indexed annuities.
Related: Participation rate, spread
Claims-Paying Ability
An insurance company's financial ability to meet its contractual obligations. Annuity guarantees depend on the issuing insurer's claims-paying ability.
Related: Financial-strength rating
Cost Basis
Generally, the amount of after-tax money paid into a nonqualified annuity, adjusted under applicable tax rules. It helps determine the taxable portion of distributions.
Related: Tax deferral, nonqualified annuity
Free Withdrawal
The amount a contract allows the owner to withdraw during a period without a surrender charge. Tax consequences and other contract effects may still apply.
Related: Surrender charge, liquidity
Free-Look Period
A state-law and contract review period during which a new owner may return an annuity contract under stated conditions. The length and rules vary.
Related: Contract delivery, surrender
Income Rider
An optional contract benefit designed to support future withdrawals or income under specified rules. A rider's benefit base is generally not the same as cash value.
Related: Benefit base, rider charge
Market Value Adjustment
A contract provision that may increase or decrease a withdrawal or surrender value based on changes in interest rates or another stated measure.
Related: Surrender charge, MYGA
Nonqualified Annuity
An annuity generally purchased outside a tax-qualified retirement plan using after-tax dollars. Federal tax rules determine how earnings and cost basis are distributed.
Related: Qualified annuity, cost basis
Participation Rate
The percentage of an index's calculated gain used in an indexed-crediting formula, subject to the contract's other terms.
Related: Cap rate, indexed annuity
Qualified Annuity
An annuity held in or funded through a tax-qualified retirement arrangement such as an IRA or employer plan. The retirement account already provides tax deferral.
Related: IRA, nonqualified annuity
Surrender Charge
A charge that may apply when more than the permitted amount is withdrawn during a contract's surrender period.
Related: Free withdrawal, surrender period
Surrender Value
The amount available if a contract is fully surrendered at a given time after applicable surrender charges, adjustments, loans, or other contract provisions.
Related: Accumulation value, surrender charge
Tax Deferral
The postponement of federal income tax on annuity earnings until taxable amounts are withdrawn. Tax rules vary, and tax deferral is not the same as tax-free growth.
Related: Withdrawal, nonqualified annuity
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