Annuity glossary

Accumulation Value

The actual account balance of your annuity — the real money that is yours. It grows based on interest credits minus any fees. This is the amount you can withdraw as a lump sum or pass to beneficiaries.

Annuitization

The process of converting an annuity's accumulated value into a series of periodic income payments. Once annuitized, you typically cannot access a lump sum. Payments can be for a fixed period or for life.

Benefit Base (Income Base)

A hypothetical value used solely to calculate guaranteed income payments under an income rider. It is not money you can withdraw. It often grows at a roll-up rate during the deferral period.

Cap Rate

The maximum interest rate your FIA can earn in a single crediting period. If the index returns more than the cap, you receive the cap. If less, you receive the actual return (down to 0%).

CDSC (Contingent Deferred Sales Charge)

Another name for surrender charges used in variable annuities. The charge typically declines by 1% per year until it reaches 0% at the end of the surrender period.

Crediting Method

The formula used to calculate how much interest is credited to your annuity. Methods include cap rate, participation rate, spread, and fixed rate.

Death Benefit

The amount paid to your named beneficiary when you die. The standard death benefit is the greater of the account value or the premiums minus withdrawals.

Deferred Annuity

An annuity where income payments begin at a future date. During the accumulation phase, your money grows tax-deferred.

DIA (Deferred Income Annuity)

An annuity that begins paying income at a future date you choose (often 5–20 years from purchase). The longer you defer, the larger the payments.

Exclusion Ratio

In non-qualified annuities, the percentage of each annuitized payment that is tax-free (return of basis) vs. taxable (earnings). Calculated as: investment in contract ÷ expected total return.

FIA (Fixed Indexed Annuity)

An annuity linked to the performance of a market index (like the S&P 500) while guaranteeing 100% principal protection. Gains are limited by caps, participation rates, or spreads.

Free Withdrawal

The amount you can withdraw from your annuity without triggering a surrender charge. Typically 10% of the account value per year.

GLWB (Guaranteed Lifetime Withdrawal Benefit)

An optional income rider that guarantees you a specified annual income amount for life, even if your account value reaches zero. Also called an income rider.

Immediate Annuity

An annuity that begins paying income within 12 months of purchase. Also called a SPIA (Single Premium Immediate Annuity).

Income Rider

An optional add-on that guarantees lifetime income. The insurer tracks a separate benefit base that grows at a roll-up rate and uses it to calculate your guaranteed income payments.

Indexing Method

How the index is measured to calculate your credit (e.g., annual point-to-point, monthly average, performance trigger).

LIFO (Last-In, First-Out)

The IRS tax rule for non-qualified annuity withdrawals: earnings are treated as coming out first (and taxed first) until all gains are distributed.

M&E Charge (Mortality and Expense)

An annual fee in variable annuities that compensates the insurer for mortality risk and expense guarantees. Typically 1.00–1.75% per year of account value.

MVA (Market Value Adjustment)

An adjustment applied on top of surrender charges when you withdraw from certain annuities during the surrender period. Can increase or decrease the payout based on changes in interest rates since purchase.

MYGA (Multi-Year Guaranteed Annuity)

A fixed annuity that locks in a guaranteed interest rate for a specific term (typically 3–10 years). No annual fees, no market exposure, no moving parts.

Participation Rate

The percentage of an index's gain that gets credited to your FIA. Example: 70% participation rate on a 10% index gain = 7% credited to your account.

Payout Factor

The percentage applied to your benefit base to calculate your guaranteed annual income from an income rider. This is the number that most determines how much income you actually receive.

Premium Bonus

An immediate credit to your account value equal to a percentage of your deposit (typically 5–23%). Usually funded through lower crediting rates, longer surrender periods, or bonus vesting schedules.

QLAC (Qualified Longevity Annuity Contract)

A specialized DIA purchased with pre-tax retirement funds. Allows you to defer RMDs on the allocated amount until as late as age 85.

RILA (Registered Index-Linked Annuity)

A hybrid annuity that links returns to a market index but allows for limited losses via buffer and floor provisions. More upside than FIAs, but some downside risk.

RMD (Required Minimum Distribution)

The minimum amount the IRS requires you to withdraw annually from qualified retirement accounts starting at age 73 (under SECURE 2.0).

Roll-Up Rate

The rate at which an annuity's benefit base (not accumulation value) grows during the deferral period. Typically simple interest, not compound. Used to calculate future income payments.

Spread

A fixed percentage subtracted from an index's return before interest is credited to your FIA. Also called margin or asset fee. Example: 9% index return minus 3% spread = 6% credited.

SPIA (Single Premium Immediate Annuity)

An annuity purchased with a single lump sum that immediately begins paying guaranteed income (within 12 months). Income can last for a set period or for life.

Surrender Charge

A fee assessed when you withdraw more than the penalty-free amount during the surrender period. Typically starts at 7–10% in year 1 and declines annually.

Surrender Period

The period during which surrender charges apply if you withdraw more than the penalty-free amount. Typically 3–14 years depending on the product.

1035 Exchange

An IRS-approved tax-free transfer of funds from one annuity to another. Preserves your tax-deferred status and carries over your original cost basis to the new contract.