The 1035 exchange is the term used to refer to the tax-free transfer of an annuity contract from an insurance company to another insurance company.
The 401(k) Plan is a design offered by for-profit business that allows employers to give contributions to a retirement savings plan on a tax deferred basis.
The 403(b) Plan is basically similar to the 401(k) Plan, but it is generally offered by non-profit organizations. This plan allows retirement savings plan contributions from the employees to grow on a tax-deferred basis until they are withdrawn.
Account Value refers to the total value of the annuity. That is the sum of the principal and the interest.
Accrued Monthly Benefit (AMB)
The AMB is the accrued monthly benefit given to an employee based on his/her years of service to the employer after he/she has reached the regular retirement age. This benefit which is considered as a pension is given to the employee every month upon his/her retirement.
After tax dollars refer to the amount of money left after the payment of the corresponding tax.
The annuitant is the individual who receives an annuity.
Bailout provision allows a fixed annuity owner to withdraw all of his/her annuity funds without a withdrawal charge when the interest rate unpredictably falls below the rate specified in the contract.
Before-tax dollar refers to the amount of money that has not yet been charged with corresponding tax.
The beneficiary is the person chosen by the annuity owner to receive the annuity income and benefits upon his/her death. This is typically the annuitant’s spouse or children.
Compound interest is the interest that accrues on the principal investment and its accumulated interest.
The death benefit is the amount given to the annuity beneficiary upon the death of the owner of the annuity contract.
Enhanced Dollar Cost Averaging Program
The Enhanced Dollar Cost Averaging Program provides a higher interest rate in particular cases like new minimum purchase payments within a limited period of time.
Fixed Annuity Contract
The fixed annuity contract is a contract between the annuity owner and the insurance company. In this contract, the insurance company guarantees a regular fixed monthly income for the annuity owner in exchange for his/her payment of premiums to the insurance company.
Fixed Income Annuities
The fixed income annuities refer to the fixed dollar amount that is returned to the beneficiary.
Fixed Rate Annuity
The fixed rate annuity is a type of a fixed annuity plan that offers a fixed interest rate on the account of the value. The fixed interest rate guarantees a fixed growth and fixed income for the annuity owner all throughout the duration of the distributions.
Initial Interest Rate
Initial interest rate is applied to the first deposit to a deferred fixed annuity. This interest rate is guaranteed in the annuity contract.
The insurer is the company that collects the annuity owner’s payment for his/her investment premium.
Premium bonus, also called bonus annuity, refers to a feature common to all kinds of annuities. In this feature, the insurance company basically adds a certain amount of money to the annuity owner’s account during the first year. This additional money, or the bonus, can be given in the form of a higher interest rate during the first year, or a partial premium match by the company.
Retirement annuity is another term used to refer to the fixed annuity. This term is used to highlight the annuity’s ability to provide a steady stream of income to the retiree (the annuity owner) in his lifetime. With the lifetime option applied to the annuity contract, the income of the annuity owners will not run out for as long as they are still living.
Also called withdrawal charge or back-end charge, surrender charge is the fee that is charged to the annuity owner’s account when the account is cancelled before the appointed time of the contract’s maturity. There are a few annuity contracts that do not feature any surrender charge, but most annuity contracts do. The decreasing surrender charge is the most common structure. In this structure, the surrender charge decreases every year until it phases out over time. Generally, by the end of the contract length, the surrender charge eventually becomes zero.
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