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The Immediate Annuity Glossary – All the Terms You Should Know!

A lot of uncommon terms are used in annuity contracts. This immediate annuity glossary defines the terms you should know for you to be well-informed.

1035 Exchange

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.

403(b) Plan

The 403(b) Plan is basically similar to the 401(k) Plan, but it is generally offered by nonprofit organizations. This plan allows retirement savings plan contributions from the employees to grow on a tax-deferred basis until they are withdrawn.

Account Value

Account Value refers to the total value of the annuity. That is, the sum of the principal and the interest.

Amount Certain Payout

In the Amount Certain Payout, the annuitant decides how much income he/she will receive monthly then the insurance company will decide about the length of time he/she will receive income.


The annuitant is the owner of the annuity account.

Asset Allocation

Asset allocation, used in variable annuities, refers to the distribution of assets across multiple classes in order to meet an individual’s financial goals in terms of risk and length of investment.

Back-End Charge

Back-end charge, also called surrender charge or withdrawal charge, is the fee that an annuity owner pays to the insurance company for withdrawing money from the annuity before the appointed date.

Bailout Provision

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.

Balance Inquiry

Balance inquiry is a tool available online that allows annuity owners to check the balance of all accounts held within an annuity.

Benchmark Index

Benchmark index, also called stock index or bond index, measures the performance of market allocations in a variable annuity.


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.

Bonus Rate

Bonus rate, also called bonus annuity, premium bonus, or first-year bonus rate, 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.

Death Benefit

The death benefit is the amount given to the annuity beneficiary or beneficiaries upon the early death of the owner of the annuity contract.

Dollar Cost Averaging

Dollar cost averaging is the investment of a fixed amount of dollars at regular intervals in a variable annuity.

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.

Exclusion Ratio

In an immediate annuity payment, exclusion ratio is the ratio of taxable to non-taxable proceeds.

Expense Ratio

Expense ratio is the percentage of an annuity account that is paid for insurance and investment charges every year.

Issuance Age

Issuance age is the age of the annuitant when the annuity policy was issued.

Life Only Payout

In the Life Only Payout, the stream of income stops when the annuitant passes away.

Life with Period Certain Payout

In the Life with Period Certain Payout, the annuitant receives a steady stream of income for a certain period of time (can be for 5 years, 10 years, 15 years, 20 years, 25 years, or 30 years)


Yield is the term used to refer to an annuity’s rate of return.