Printable checklist for your desk
Print the key terms and keep them next to any annuity document you are reading.
Download the PDF (large print)How to use this glossary. Each definition is paraphrased from a regulator or the IRS and points to the source. Contract terms vary by company and state, so your contract controls. Terms that regulators do not define are labeled.
| Term | What it means |
|---|---|
| Accumulation phase | The period when you pay in and the contract value changes before income starts. [1] |
| Annuitant | The person whose life expectancy determines payouts. [2] |
| Annuitization | Converting the contract to regular payments for life or a set period. Generally irrevocable. [1] |
| Annuity | A contract with an insurance company designed to meet retirement and other long-range goals. [3] |
| Annuity starting date | For tax purposes, the later of the first day of the first payment period or the date the obligation becomes fixed. [4] |
| Annual point-to-point | An indexing method that compares the index on two dates one year apart. [1] |
| Averaging | An indexing method that compares the average of index values at intervals with the starting value. [1] |
| Beneficiary | The person who receives benefits after the owner or annuitant dies. [1] |
| Benefit base (income base) | Not defined by the regulators we reviewed. In many contracts it is a separate figure that an income guarantee is calculated from, and it can differ from the account value. Ask for the contract's definition in writing. |
| Bonus | An amount added by the company. It may be lost or reduced if you withdraw early. [1] |
| Buffer | In a registered index-linked annuity, the company absorbs a set percentage of loss first. [2] |
| Cap rate | The maximum interest the annuity can earn in the index term. [1] |
| Cash refund | A payout feature that returns unpaid premium to a beneficiary, which the IRS counts when figuring investment in the contract. [6] |
| Crediting method | The formula used to turn index changes into credited interest. [1] |
| Death benefit | Money paid to the beneficiary at death, which may be the greater of account value or a guaranteed minimum. [7] |
| Deferred annuity | Income begins at a later chosen date. Funded by one payment or a series of payments. [1] |
| Exclusion ratio | Under the IRS General Rule, the tax-free share of each payment is investment in the contract divided by expected return, fixed at the annuity starting date and limited to total cost. [6] |
| Expected return | The total payments expected, using IRS life expectancy tables or the number of payments for a fixed period. [6] |
| Fixed annuity | The company guarantees a minimum interest rate and sets the rate credited. [3] |
| Fixed indexed annuity | Interest is linked partly to an index, credited at the end of the term, and never below zero. You are not invested in the index. [8] |
| Floor | In a registered index-linked annuity, a limit on loss to a set percentage. [2] |
| Free look | A period after you receive the contract when you can cancel it. Usually 10 to 30 days and it varies by state. [1] |
| Free withdrawal | The amount you can take out without a surrender charge, often up to about 10% a year. [1] |
| Guaranteed minimum rate | The lowest rate the contract promises, which is different from the current rate. [9] |
| Guaranty association | A state entity that protects policyholders if a company fails, up to set limits. Not federal insurance. [10] |
| GLWB (guaranteed lifetime withdrawal benefit) | A rider that allows withdrawals for life, even if the contract value falls to zero. Withdrawals above limits can reduce it. [11] |
| Immediate annuity | You pay once and income begins soon, with no accumulation phase. [3] |
| Index | A measure of market performance. The contract is not invested directly in it. [1] |
| Investment in the contract | Your net cost: premiums paid minus tax-free amounts received and refunds. [6] |
| Joint and survivor | Payments continue until both people have died, at 100% or a reduced share. [1] |
| Living benefit | Optional extra-cost guarantees such as lifetime withdrawal, minimum income, and minimum accumulation benefits. [11] |
| Longevity annuity | A type of fixed annuity that begins payments later in life. [3] |
| Market value adjustment | An adjustment that can raise or lower the value you receive on early withdrawal, depending on interest rates. [1] |
| Monthly sum (monthly point-to-point) | Adds each month's change. Gains in a month are limited to the cap, losses are not, and a total below zero credits 0%. [1] |
| Mortality and expense charge | The base contract fee in a variable annuity, about 1.25% a year in the SEC example. [11] |
| Nonforfeiture | Minimum values the contract must provide on surrender, set by state law and the NAIC model. [12] |
| Owner | The person who pays premiums and controls the contract. [2] |
| Participation rate | The share of the index gain used to calculate interest. For example, 75% of a 10% gain is 7.5%. [1] |
| Payout phase | The period when the company pays out the accumulated funds. [2] |
| Period certain | Payments for a set number of years regardless of how long the annuitant lives. [1] |
| Premium | A payment into the annuity, either single or multiple. [1] |
| QLAC | A qualified longevity annuity contract bought with retirement money: no cash surrender, payments start by age 85, and the premium limit is $210,000 for 2026. [13] |
| Rider | An added feature, usually at extra cost. [1] |
| RILA | Registered index-linked annuity. You can lose money; the company sets limits on gains and losses. It is a security. [2] |
| Section 1035 exchange | A tax-free exchange of one annuity for another. Surrender charges and a new surrender period may apply. [3] |
| Spread (margin or asset fee) | A set percentage subtracted from the index gain. [1] |
| State premium tax | A state tax on annuities that the company may deduct at purchase, withdrawal, payout start, or death benefit. [1] |
| Surrender charge | A fee for withdrawing within the surrender period. Usually declines each year. [1] |
| Surrender period | The years after purchase when surrender charges apply. Typically six to ten years or longer. [8] |
| Tax-deferred | Taxes are not due until you receive the money. [9] |
| 10% additional tax | A federal tax on the taxable part of withdrawals before age 59 and a half, with exceptions. [14] |
| Variable annuity | Returns depend on investment subaccounts. You can lose money. Registered with the SEC. [15] |
New to annuities? Start with Types of Annuities, then see Fixed Indexed Annuities.
Frequently asked questions
What is the difference between an owner, an annuitant, and a beneficiary?
The owner pays and controls the contract, the annuitant is the person whose life expectancy determines payouts, and the beneficiary receives benefits after death.
What is a surrender charge?
A fee for withdrawing within the surrender period. It usually declines each year.
What is a QLAC?
A qualified longevity annuity contract bought with retirement money. It has no cash surrender, payments must start by age 85, and the 2026 premium limit is $210,000.
Sources and review notes
- NAIC: Buyer's Guide to Fixed Deferred Annuities
- FINRA: Annuities
- SEC Investor.gov: Glossary
- IRS Publication 939: General Rule for Pensions and Annuities
- SEC Investor.gov: Annuities
- IRS Publication 575 and 939 (exclusion ratio, cash refund)
- SEC Investor.gov: Variable annuities
- SEC Investor.gov: Indexed annuities bulletin
- NAIC: What to know before buying an annuity
- NOLHGA: Product coverage FAQs
- SEC Investor Bulletin: Variable annuities
- NAIC Model 805: Standard nonforfeiture law
- IRS Notice 2025-67
- IRS Topic 557
- SEC: Guide to variable annuities
About this guide. This is general education, not tax, legal, or investment advice, and it is not a recommendation to buy or not buy any product. Nazim Lokhandwala is a licensed insurance professional who offers fixed and indexed annuity products. He does not offer variable annuities or registered index-linked annuities. This guide covers every type so you can compare, and an annuity is not the right choice for everyone. Annuity guarantees depend on the claims-paying ability of the issuing insurer. Product features, rates, and rules vary by company and by state, so read your contract and ask the seller to explain anything that is unclear.