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1035 Exchange: An Internal Revenue Code provision that allows the tax free exchange of one insurance contract for another. The exchange is not taxable and the tax cost basis of the old contract is carried over to the new one. However, the exchanged contracts must be similar products and the insured and owner may not change.

Account Value: For a variable annuity contract, a measurement of the value invested in the account during the accumulation period of the contract. Also referred to as the Accumulation Value. See Accumulation Unit.

Accumulation Phase: The accumulation phase is the period when an annuity owner can add money and accumulate assets in a tax-deferred manner. Now that the national trend is individuals wanting to save money for retirement, it is common for people to ask, "How am I doing?" This really means, "Will I have enough to retire on - because I don't want to run out." Understanding the accumulation phase can better prepare you to avoid confusion as you save money for your retirement.

Accumulation Unit: A unit of measurement used in determining the value of a variable annuity contract before the effective date of a payment plan.

Administration Asset Charge: A charge deducted daily from the assets of each sub-account of the variable account to cover the company's cost of providing certain administrative services relating to the contracts and the variable account.

Administration Contract Charge: A charge deducted annually from the contract value in the variable account to cover the company's cost of providing certain administrative services relating to the contracts and the variable account.

Age at Annuitization: Age of the annuitant when an annuity contract is put under a variable and/or fixed payout option.

A.M. Best Rating: A.M. Best provides independent opinions regarding the creditworthiness of an issuer or debt obligation. A.M. Best generates their credit ratings based on an evaluation of a company’s balance sheet, operating performance, business profile, and debt security. An issuer’s financial strength is rated with A++ to S rating, with A++ being Secure and an S rating being Vulnerable. www.ambest.com

Annual Gift: An annual gift is a donation that is made every year and is a way to provide significant tax savings for many individuals. Annual gifts provide ongoing support for university campuses, schools, departments and other programs or organizations. An annual gift is often associated with annuities.

Annual Reset: Since the interest earned is 'locked in' annually and the index value is 'reset' at the end of each year, future decreases in the index will not affect the interest you have already earned. Therefore, your annuity using the annual reset method may credit more interest than annuities using other methods when the index fluctuates up and down often during the term. This design is more likely than others to give you access to index-linked interest before the term ends. Your annuity's participation rate may change each year and generally will be lower than that of other indexing methods. Also an annual reset design may use a cap or averaging to limit the total amount of interest you might earn each year.

Annual Subaccount Fee (similar to annual fees): A fee deducted for fund operating costs, management fees, and other asset-based costs incurred by the fund. This charge is assessed at the subaccount level and is not deducted from policy values.
Annuitant: The person on whose life the annuity values are based.

Annuitization: Annuitization means converting part or all of the money in a qualified retirement plan or nonqualified annuity contract into a stream of regular income payments, either for the lifetime of the annuitant or the lifetimes of the annuitant and the joint annuitant.

Annuitization Period: The period of the policy when the amount built-up or accumulated during the accumulation phase is paid out to the annuitant in the form of systematic payments.

Annuitize: To begin a series of payments from an annuity. An amount and payout schedule is selected and accumulated capital is paid to the annuitant or, in some cases, to a beneficiary. This term also refers to the settlement of a life insurance policy under the contract's annuity options.

Annuity: A contract sold by a life insurance company that provides fixed or variable payments to an annuitant, either immediately or at a future date, usually to supplement retirement income. The income is paid from a stipulated date either until the death of the annuitant or for a specified number of years. Annuities can be classified as deferred, immediate, variable or fixed.

Annuity Owner: The annuity owner is the person or people who make decisions about an annuity's investments. The owner or owners have the rights to make withdrawals from the annuity, surrender or change the designated beneficiary or other terms of the annuity.

Annuity Type: A financial product primarily used as a means of securing a steady cash flow for an individual during their retirement years, there are several kinds of annuity contracts that legally bind an insurance company to provide periodic payment to the annuitant. Annuities can be structured according to varying details and factors, such as the duration of time that payments from the annuity can be guaranteed to continue or to provide fixed periodic payments to the annuitant. Variable annuities are intended to allow the annuitant to receive greater payments if investments of the annuity fund do well and smaller payments if its investments do poorly.

Anticipated Initial Investment: The anticipated initial investment is the amount of money you want to invest at the beginning. Most companies have certain minimum initial investment amounts for annuities or other investments.

Application: A form that must be completed by an individual who is requesting that life, disability or annuity insurance be issued. The applicant provides personal information about finances and health, and the underwriter uses the information to determine the appropriate classification and rate for the proposed insured.

Arbitrage: Arbitrage is an attempt to make a profit by exploiting price differences of identical or similar financial instruments, on different markets or in different forms. The ideal version that is sought after is called risk-less arbitrage.
Assets: All the financial assets under the management of a company, including stocks, bonds, mortgage loans, real estate, annuities, investments, policy loans and cash.

Asset Manager: The person in charge of the financial assets such as immediate annuities, deferred annuities or stocks and bonds.
Asset Protection Trust (APT): An APT is a legal arrangement in which an individual (the trustor) gives fiduciary control of property to a person or institution (the trustee) for the benefit of beneficiaries. This type of agreement applies to both annuities and other investments.

Averages: An average is an arithmetic mean of a group of stocks designed to represent the overall market or some part of it. An average differs from an index in that it is not weighted. The Dow Jones Industrial Average is the most common average.

A-Share Variable Annuities: Like A-share mutual funds, A-share variable annuities have up-front sales charges instead of surrender charges. Sales charges are calculated as a percentage of each premium payment. A-share variable annuities offer breakpoint pricing, which means up-front sales charges decrease depending on the cumulative amount of purchase payments that have been made. In addition, assets that a contract owner has in other products in the company's product line may be recognized in the cumulative payment amount used to determine the breakpoint pricing. A-share contracts often have lower ongoing M&E annual fees than annuities with surrender charges.

Back End Load: A charge that is incurred when money is withdrawn from a contract, through loan or surrender.

Backup Withholding: A Backup withholding is a mandatory withholding that may be imposed when rules regarding taxpayer identification numbers, (usually a Social Security number) are not met by the individual. Another way for these withholdings to take effect is when a notice is issued by the IRS to withhold on payments to that individual. Backup withholding may be claimed as a credit by taxpayers on their federal income tax return.

Bail-Out Provision: An option that permits an annuitant to withdraw money without penalty if the rate of return drops by a certain amount (typically one percentage point) from the initially guaranteed rate.

Beneficiary: The person or persons designated by the policyowner to receive the proceeds of an insurance policy upon the death of the insured. The policyowner may name both a primary and secondary beneficiary, and may change the beneficiary through a written request to the home office. See Irrevocable Beneficiary and Change of Beneficiary Provision.

Beneficial Owner: The individual who enjoys the benefits of owning a security or property - regardless of whose name the title is in.

Bequest: A bequest may be of a specific sum, a percentage, or the residue of an estate, and may consist of cash, securities, life insurance proceeds, real estate, and / or personal property. A bequest may be made through a will or by a living trust.

Bonus Option: An optional bonus that can be zero to five (0%-5%) percent.

Bonus Rate: A bonus rate is the "extra" or "additional" interest paid during the first year (the initial guarantee period), typically used an added incentive to get companies to switch or select their annuity policy over another.

B-Share Variable Annuities: Most variable annuity contracts are B-share products. They are offered with no initial sales charge, but cancellation of the contract during its early years may trigger a withdrawal charge known as a surrender charge. These charges typically range from 5-7% of premium in the first policy year, and subsequently decline to zero, generally after five to seven years (known as the surrender charge period). Some annuity contracts impose surrender charges only during the initial surrender charge period that begins after the contract is purchased, while others associate a new surrender charge period with each subsequent premium payment. Surrender charges underscore the long-term nature of the annuity product. As long as contract owners remain committed to accumulating money for retirement through their variable annuity, they generally will not incur these charges. In addition to surrender charges, B-share contracts annual M&E and administration fees.

Carrier: The underwriting insurance company.

Certificate of Deposit (CD): Short or medium-term, interest-bearing, FDIC-insured debt instrument offered by banks and savings and loans. A low risk investment vehicle with low returns, there is usually an early withdrawal penalty.

Charitable Annuity (Gift Annuity): A charitable gift annuity is a contract between a donor and a foundation, under which the foundation guarantees payment of an annuity, unlike a trust which pays the annuity from its assets alone. Two features in particular make charitable gift annuities appealing. An individual may specify whether he or she wants an immediate annuity, with payment to begin not later than one year from the date of the gift, or a deferred gift annuity, from which payments are not to begin until a specified future date. In addition, the income stream from such an arrangement can be higher than current market rates.

Charitable Lead Trust: These trusts provide income-either a percentage or a specified amount-to a Foundation for a specific number of years. At the termination of this period, the principal is returned to the donor or others whom the donor has designated. Under one type of charitable lead trust the donor includes the income in his or her taxable income, but is entitled to a corresponding charitable deduction if he or she itemizes the amount of income paid to the Foundation in that year.

Charitable Remainder Annuity Trust: One of many types of available trusts, charitable remainder annuity trusts provide that a specified dollar amount (at least 5% of the fair market value of the assets at the time the trust is created) be paid at least once a year to the beneficiary for their lifetime or for a term of years, not to exceed twenty.

Collateral Assignments: A collateral assignment is when the ownership rights in a contract or account are transferred from one person to another to serve as collateral for a debt. This transfer is usually made with the provision that the ownership rights revert to the original owner when the debt is repaid. A collateral assignment of a nonqualified annuity is considered a taxable event to the owner of the contract.

Contingent Annuitant: If designated in the application, the person who becomes the annuitant under the contract if the annuitant dies prior to annuitization. A contingent annuitant must be designated for individually owned contracts where the contract owner and annuitant are not the same. The contingent annuitant must be a contract owner. The contingent annuitant cannot be changed after the death of the annuitant.

Contingent Deferred Sales Charge: The disappearing back end sales load that may be charged upon withdrawal or election of a payment option.

Contract Anniversary: The anniversary of the contract date. The date used as the start date for purchase payments, measurement of policy values and crediting of dividends.

Contract Type - Nonqualified: A contract that provides for tax deferral of investment income until withdrawn from the contract. Fixed annuities offer a fixed rate of return for a stipulated period, while variable annuities offer a choice of investment options.

Contract Type - Qualified: Qualified annuities are annuities purchased for funding an IRA, 403(b) tax-deferred annuity, or other type of retirement arrangements. An IRA or qualified retirement plan provides the tax deferral. An annuity contract should be used to fund an IRA or qualified retirement plan to benefit from an annuity's features other than tax deferral, including the lifetime income payout option, the death benefit protection and, for variable annuities, the ability to transfer among investment options without sales or withdrawal charges.

Contract Value: On or before annuitization, the value obtained by multiplying the number of accumulation units credited to the contract by the appropriate current accumulation unit value. Under contracts with the fixed account option, the contract value also includes the amount of contract value allocated to the fixed account.

Contract Year: A twelve-month period commencing with the contract date and with each contract anniversary thereafter.

Cost Basis: Your initial payment/premium(s) paid to a nonqualified annuity is known as the cost basis in your contract. Since it was previously taxed, your cost basis will not be taxed upon withdrawal. If a previous distribution was not fully taxable, the cost basis would be reduced by the amount that was not taxable. For contracts purchased after August 14, 1982, a "withdrawal" must come from earnings first for tax purposes, and any amounts in excess of your cost basis will be taxed as ordinary income (an additional 10 percent "federal income" tax penalty may apply for those less than 59 1/2 years of age) upon withdrawal.

Current Interest Rate: This is the interest rate that an annuity is paying, including the sum of the base rate, if any and the bonus rate, if any. The current rate is set by the insurance company at the time of issue and is guaranteed for specific length of time.

C-Share Variable Annuities: C-share, or no-surrender-charge variable annuities, offer full liquidity to owners at any time, without any up-front or surrender charges (although tax penalties may apply to withdrawals before age 59.5). There are, however, ongoing M&E and administrative fees.

Death benefits: The payment the investor's estate or beneficiaries will receive if he or she dies before the annuity matures. There are several types of death benefits with variable annuities, including: Current account value or initial investment (whichever is greater), in which the beneficiary receives the value of the annuity when the policyholder dies; Rising floor, in which an investment company guarantees a minimum return on premium deposits, regardless of subaccount investment performance; Ratchet, a benefit equal to the greater of (a) the contract value, (b) premium payments less prior withdrawals or (c) the contract value on a specified prior date; and Stepped-up, which guarantees the account value to the beneficiary as of a particular anniversary date (e.g. every 5 years).

Deferred Annuity: An “accumulation” annuity product under which payments are made by the annuitant (either through a single premium or a series of periodic payments) and left to accumulate on a tax-deferred basis over a period of years. It usually begins paying an income to the annuitant at retirement.

Direct Rollover: This is when an eligible qualified retirement plan or Section 403(b) distribution is moved directly from a qualified retirement plan or Section 403(b) tax-deferred annuity to an IRA or to another qualified retirement plan or Section 403(b) tax-deferred annuity. The individual's employer will not have to withhold 20% for federal income taxes from a direct rollover.

Dollar-Cost Averaging: A systematic investment method that allows the investor to deposit a constant amount on a regular basis. Many investors find that such a discipline helps them budget their investment program. It works by letting the “law of averages” even out marketplace volatility. It eliminates the need for market timing. For best results, regular payments should continue through good times and bad, whether securities markets are up or down.

Dow Jones EURO STOXX 50: The Dow Jones EURO STOXX 50 Index, Europe's leading Blue-chip index for the Eurozone, provides a Blue-chip representation of supersector leaders in the Eurozone. The index covers 50 stocks from 12 Eurozone countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

Dow Jones Industrial Average - DJIA: The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896. Often referred to as 'the Dow', the DJIA is the oldest and single most watched index in the world.

EIT Type: The indexing method means the approach used to measure the amount of change, if any, in the index. Some of the most common indexing methods, which are explained more fully later on, include annual reset (ratcheting), high-water mark and point-to-point.

Equity Indexed Annuity: An annuity whose returns are based upon the performance of an equity market index, such as the S&P 500, DJIA, or NASDAQ. The principal investment is protected from losses in the equity market, while gains add to the annuity's returns.

Exchanges: Under IRC §1035, certain insurance and annuity policies may be exchanged for new policies with no gain or loss recognized on the exchange. Tax rules must be followed to achieve the required result.

Exclusion Ratio: (Nonqualified Income Annuity.) This is the ratio that determines which portion of an annuity distribution is earnings and which portion is a return of your original investment. Only the portion consisting of earnings is taxable.

Fixed Annuity: Fixed annuities are an investment vehicle offered by insurance companies that guarantee a stream of fixed payments over the life of the annuity. The insurer, not the insured, takes the investment risk. Fixed annuities are sometimes called a fixed dollar annuity.

Fixed Annuity Payout Option: A payment option providing for payments which remain fixed throughout the payment period and do not vary with the investment performance of the underlying funds.

Fixed Guarantee Period: A set period of time for guarantee that can extend from 0-20 years.

Fixed Payment Plan: An annuity plan payout option that distributes payments in set amounts. Fixed plans provide for the systematic liquidation of principal and interest in a series of equal periodic payments that do not fluctuate over time. Compare to Variable Payment Plan.

Flexible Premium Annuity (FPA): A type of fixed deferred annuity that permits flexible premium payments after the initial payment. Both principal and earnings are guaranteed.

FTSE 100 Index: The FTSE 100 Index is a share index of the 100 most highly capitalized UK companies listed on the London Stock Exchange. It is frequently reported (e.g. on UK news bulletins) as a measure of business prosperity.

Group Pension Annuity: An annuity contract used exclusively for funding qualified retirement benefit plans on a group basis.

Guaranteed Death Benefit (Annuity): For variable annuity contracts, the guarantee provides that, upon the death of the annuitant or owner during accumulation period before age 65, the beneficiary receives at least the amount originally invested (mine withdrawals) – or – the value of the contract, whichever is greater. For fixed annuity contracts, the beneficiary receives the accumulation value if the annuitant dies before the contract matures.

Guaranteed Minimum Accumulation Benefit (GMAB): A guarantee that the account value will be a certain amount at a certain point in the future.

Guaranteed Minimum Death Benefit (GMDB): For variable annuity contracts, the guarantee provides that, upon the death of the annuitant or owner during the accumulation period before age 65, the beneficiary receives at least the amount originally invested (minus withdrawals), or the value of the contract, whichever is greater. For fixed annuity contracts, the beneficiary receives the accumulation value if the annuitant dies before the contract matures.

Guaranteed Minimum Income Benefit (GMIB): A guarantee of a minimum income stream upon annuitization at a particular point in the future.

Guaranteed Minimum Withdrawal Benefit (GMWB): A guarantee of a minimum income at a particular point in the future.

HFRX Global Hedge Fund Index: The HFRX Global Hedge Fund Index is designed to be representative of the overall composition of the hedge fund universe. It is comprised of eight strategies; convertible arbitrage, distressed securities, equity hedge, equity market neutral, event driven, macro, merger arbitrage, and relative value arbitrage. The strategies are asset weighted based on the distribution of assets in the hedge fund industry. The values for the HFRX Global Hedge Fund are calculated by applying to the USD index value the cost of a rolling monthly foreign exchange contract on the relevant currency.

High Water Mark: Since interest is calculated using the highest value of the index on a contract anniversary during the term, this design may credit higher interest than some other designs if the index reaches a high point early or in the middle of the term, then drops off at the end of the term. Interest is not credited until the end of the term. In some annuities, if you surrender your annuity before the end of the term, you may not get index-linked interest for that term. In other annuities, you may receive index-linked interest, based on the highest anniversary value to date and the annuity's vesting schedule. Also, contracts with this design may have a lower participation rate than annuities using other designs or may use a cap to limit the total amount of interest you might earn.

Immediate Annuity: An annuity product under which life income or specified period payments begin at the start of the next period following premium payment (for example, one month or one year). When you purchase an immediate annuity, it is generally with a single lump sum, and your income payments begin within 12 months of the date of purchase. With fixed immediate annuities, your payment from the annuity is based on a fixed interest rate. With variable immediate annuities, your payment is based on the value of the underlying investment, usually a stock portfolio. After choosing an immediate annuity the annuity owner determines the schedule of payments. This can be done either monthly, quarterly, semiannually or annually. Another important decision to make with your immediate annuity is how long the payments will last. The annuity owner can choose to receive payments for a specified period of time, an entire lifetime or even for the life of a beneficiary.

Indices: An equity index annuity in the United States is a type of tax-deferred annuity whose credited interest is linked to an equity index, typically the S&P 500 but which also guarantees a minimum interest rate (typically about 3%) and against a loss of all or most principal. The returns are typically conservative and the contracts are mostly suitable for those who are retired or nearing retirement. The objective of purchasing an equity index annuity is most often to realize greater gains than those provided by fixed annuities, while still protecting principal.

Individual Retirement Account/ Annuity (IRA): A retirement savings plan, which allows individuals to contribute toward an account on a tax-deferred basis. The contributions and earnings are taxable as income only when withdrawn or paid out after retirement.

Installment Income: The settlement option or payment plan, which provides that the proceeds of a life insurance policy or annuity contract will be paid in a fixed amount at regular intervals for as long as the proceeds last or for a fixed number of months or years.

Installment Refund Annuity: A type of annuity policy that guarantees that, should an annuitant die before receiving payments equivalent to the amount paid to establish the annuity, the difference will be refunded to the beneficiary in equal installments.

Interest Only Option: A settlement option for annuities in which an individual is paid only the interest on the maturity proceeds. A Form 1099-R is issued in the year the annuity matures, and will report any taxable gain. From that point on, the owner receives interest on the maturity proceeds left on deposit.

Joint and Last Survivor Annuity: A type of annuity settlement option, which guarantees a lifetime income for two or more persons.

Life Annuity: An annuity in which payments are guaranteed to be paid at regular intervals for the life of the annuitant.

Life Annuity with Period Certain: A life annuity that guarantees payments will continue for a specified number of years. If the annuitant dies before the period certain has expired, payments will be made to a beneficiary for the duration of the period certain.

Life Income: A settlement option, or payment plan, that guarantees the beneficiary of a life insurance policy or annuity contract regular payments for life.

Life Income With a Period Certain: Income is paid for the life of the annuitant but for at least the certain period elected (1 to 30 years).

Life Income With Cash Refund: Income is paid for the life of the annuitant and at least the amount originally placed under option. Available on Fixed Payout option only.
 
Low Water Mark: The low-water-mark method uses the lowest of the indices on each of the policy anniversaries before maturity as the level of the index at issue. This method tends to lessen the risk of market decline. The index-linked interest, if any, is determined by looking at the index value at various point during the term, usually the annual anniversaries of the date you bought the annuity. The interest is based on the difference between the index value at the end of the term and the lowest index value. Interest is added to your annuity at the end of the term.

L-Share Variable Annuities: L-share variable annuities have no up-front sales charges. They typically have relatively short surrender charge periods, such as three or four years, but may have higher ongoing M&E and administrative charges than other share classes.

Market Value Adjustment: Adjustments or deductions made to charge off a loss.

Max Spread: In some annuities, the index-linked interest rate is computed by subtracting a specific percentage from any calculated change in the index. This percentage, sometimes referred to as the 'margin,' 'spread,' or 'administrative fee,' might be used instead of, or in addition to, a participation rate. For example, if the calculated change in the index is 10%, your annuity might specify that 2.25% will be subtracted from the rate to determine the interest rate credited. In this example, the rate would be 7.75% (10% - 2.25% = 7.75%). In this example, the company subtracts the percentage only if the change in the index produces a positive interest rate.

Medicaid Annuity: A Medicaid annuity is the term given to the process of using an immediate annuity to help protect assets against the high cost of nursing homes and expensive healthcare charges.
Since Medicaid won't pay for people's nursing home care if they have assets of more than about $2,000, (not counting a house or car), some individuals utilize a technique whereby they transfer all of their liquid assets into an irrevocable Medicaid annuity. The annuity effectively transfers all of their wealth to a third party insurance company, which in return guarantees the Medicaid annuity owner a monthly fixed income for life. In many states, the Medicaid annuity can be an attractive alternative to traditional advice of self-impoverishment to qualify for welfare.
Several states have initiated look back policies whereby the Medicaid annuity is not allowed to be utilized due to state regulations. In many states however, the Medicaid annuity is an ideal tool for certain individuals, providing that the annuity contract is irrevocable, actuarially sound, includes equal payments over the lifetime of the annuitant, and does not include a benefactor or balloon payment upon death.

Min Cap: Some annuities may put an upper limit, or cap, on the index-linked interest rate. This is the maximum rate of interest the annuity will earn. Not all annuities have a cap rate.

Min Participation Rate: The participation rate decides how much of the increase in the index will be used to calculate index-linked interest. For example, if the calculated change in the index is 9% and the participation rate is 70%, the index-linked interest rate for your annuity will be 6.3% (9% x 70% = 6.3%). A company may set a different participation rate for newly issued annuities as often as each day. Therefore, the initial participation rate in your annuity will depend on when it is issued by the company. The company usually guarantees the participation rate for a specific period (from one year to the entire term). When that period is over, the company sets a new participation rate for the next period. Some annuities guarantee that the participation rate will never be set lower than a specified minimum or higher than a specified maximum.

Monthly Averaging: Under this method, the annual interest credits are based on an average of the monthly index values during each policy year, subject to a maximum or cap. Because this indexing method averages the monthly index values throughout the policy year, it may reduce the amount of interest credits you earn when the external index rises steadily during the policy year.

Morningstar rating: A rating of annuity products based on their quality as measured by Morningstar, a leading, independent provider of investment information. Annuities subaccounts are rated with 1-5 stars, with 5 being the best possible rating.

NASDAQ-100 Index: The NASDAQ-100 Index includes 100 of the largest domestic and international non-financial securities listed on The NASDAQ Stock Market based on market capitalization. The Index reflects companies across major industry groups including computer hardware and software, telecommunications, retail/wholesale trade and biotechnology. It does not contain securities of financial companies including investment companies. The NASDAQ-100 Index represents the largest non-financial domestic and international securities listed on The NASDAQ Stock Market based on market capitalization.

Non-Qualified Benefits Plan: A retirement plan arrangement that allows an employee and/or employer to make contributions to an annuity. This plan is subject to fewer restrictions and is easier to administer than a Tax-Qualified Plan. Compare to Tax-Qualified Plan.

Nonqualified Deferred Annuity: A contract that provides for tax deferral of investment income until withdrawn from the contract. Fixed annuities offer a fixed rate of return for a stipulated period, while variable annuities offer a choice of investment options.

Nonqualified Income Annuity: A contract that provides periodic payments based on life or joint life expectancies and/or a period certain (i.e., life and 10 years certain). The periodic payment amount is based on the amount used to purchase the contract, the terms of the payout, and an assumed rate of return.

One-year annualized total return: This percentage figure reflects a subaccount's total return (gain or loss) averaged over a year.

Payee (Annuity): Any person or entity entitled to receive payment in one sum or under a payment option. The term includes (I) an annuitant, (ii) a beneficiary or contingent beneficiary who becomes entitled to payments upon death of the contract owner (or annuitant, if the contract owner is not owned in an individual capacity), and (iii) in the event of surrender or partial surrender of the contract, the contract owner.

Payment Plans: Optional modes of settlement for both life insurance proceeds and annuity plans whereby the owner, or beneficiary, can receive an installment income, rather than a single lump sum payment. The usual options are Interest Income, Installment Income, and Life Income. Also known as Settlement Options.

Pension Annuities: A pension is a qualified retirement plan set up by a corporation, labor union, government, or other organization for its employees. Examples of pensions include profit-sharing plans, stock bonus and employee stock ownership plans, thrift plans, target benefit plans, money purchase plans, and defined benefit plans.

Percentage change: The change in the S&P 500 Index from the beginning of the term to the end of the term expressed as a percentage.

Period Certain: Refers to the payout option on an annuity that will provide a guaranteed installment income for a specific number of years, e.g. 10 years or 20 years. If the annuitant dies during this specified time period, the beneficiary will receive the remaining payments.

Performance Triggered Indexed Account: Any interest credited to your account is determined by comparing the S&P 500 Index values from the beginning of the 1-year term to the end of that term. If the ending S&P 500 Index value is equal to or greater than the beginning S&P 500 Index value, the account will earn interest at the specified rate set at the beginning of the term. The specified rate is declared annually, but will never be less than that guaranteed minimum specified rate of 2.50%. Overall negative performance will not impact the account value; if the ending S&P 500 Index value is less than the beginning S&P 500 Index value, the account is credited 0%. Indexed account interest (if any) will be credited at the end of the 1-year indexed term. Withdrawals made before the end of a term will not receive any interest for that term.

Point to Point: Since interest cannot be calculated before the end of the term, use of this design may permit a higher participation rate than annuities using other designs. Since interest is not credited until the end of the term, typically six or seven years, you may not be able to get the index-linked interest until the end of the term.

Premium bonus: A Premium bonus is additional money that is credited to the accumulation account of an annuity policy under certain conditions.

Premium Deferred Annuities: In the world of annuities there are many options to choose from. When it comes to premium deferred annuities it is important to know how they are different from other fixed annuities. There are two different types of deferred fixed annuities. Those purchased with a onetime premium are called single-premium deferred annuities. Annuities funded by ongoing contributions over a period of time are called flexible-premium deferred annuities.

Premium Taxes: Some states charge a tax on the contributions made to an annuity. The issuing company generally charges the annuity contract for any premium tax and other taxes based on premium it pays to the state.

Primary Annuitant: A Primary Annuitant is a person who receives income from an annuity. If you receive a distribution from an annuity that you or your employer buys with your 401(k) assets, you're the annuitant.

Private Annuity: A private annuity is a personal or restricted annuity. The major difference between private annuities and commercial annuities is that the person or entity that assumes the obligation for the private annuity is not in the business of selling annuities. The private annuity is an arrangement where the client transfers property to another in return for the other's promise to make periodic payments to the client in fixed amounts for the rest of the Client's life. The typical situation involves an insurance company; but properly established private annuities are fully recognized by the Internal Revenue Service as well.

Prospectus: A legal document that explains fees, goals, and procedures for investment products. All persons considering the purchase of a variable life or annuity product must be provided with this document, and potential buyers are urged to read it carefully.

Purchase Payment: This term refers to any investment or deposit the contract owner contributes to a variable annuity.

Qualified Annuities: Qualified annuities are annuities purchased for funding an IRA, 403(b) tax-deferred annuity, or other type of retirement arrangements. An IRA or qualified retirement plan provides the tax deferral. An annuity contract should be used to fund an IRA or qualified retirement plan to benefit from an annuity's features other than tax deferral, including the lifetime income payout option, the death benefit protection and, for variable annuities, the ability to transfer among investment options without sales or withdrawal charges.

Retirement Annuities: Retirement annuities can refer to many to different types of investment vehicles. But in general these are 'old style' individual pension plans. These types of retirement annuities were similar in nature to personal pension plans, which allowed you to take a greater amount of your pension fund at retirement as a tax-free lump sum but insisted that you should normally be at least 60 years old before gaining the benefits.

Reverse Annuity Mortgage: A reverse annuity mortgage is an arrangement in which a homeowner borrows against the equity in his/her home and receives regular monthly tax-free payments from the lender. A reverse annuity mortgage is also called reverse-annuity mortgage or home equity conversion mortgage.

Risk Tolerance: The degree of uncertainty that an investor is willing to tolerate in regard to a negative change in the value of his or her portfolio. This degree can be broadly defined by completing a survey of financial questions. An investor's risk tolerance varies according to age, income requirements, financial goals, investments and savings. For example, a 75-year-old retiree will generally have a lower risk tolerance than a 30-year-old executive because the 30-year-old generally has a longer time frame to make up for any losses he or she may incur on their portfolio.

Russell 2000® Index: The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2000 is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set.

Secondary Annuitant: A Joint Annuitant is also a person who receives income from a joint annuity. If you receive a distribution from an annuity that you or your employer buys with your 401(k) assets, you're the annuitant.

Single Premium Immediate Annuity: A fixed immediate annuity that is purchased with a single lump sum payment, providing income for life or for a specified period that commences immediately at the next payment period following issuance of the annuity contract.

Single Premium Retirement Annuity: A fixed deferred annuity that is purchased with a single lump sum payment.

Social Security Benefit: Social Security is a federal government program designed to provide income for qualifying retired people, their dependents, and disabled people who meet the Social Security test for disability. You qualify for retirement benefits if you have had at least the minimum required payroll tax withheld from your wages for 40 quarters, the equivalent of 10 years. The minimum for each quarter is set by Congress and increases slightly each year. You earn credits toward disability coverage in the same way. The amount you receive in Social Security retirement benefits, up to the annual cap, is determined by the payroll taxes you paid during your working life, which were matched by an equal tax paid by your employers. Some of your benefit may be subject to income tax if your income plus half your benefit is higher than the ceiling Congress sets.

Split Annuities: A split annuity is a very tax efficient and intelligent investment vehicle combining two different types of annuities - a single premium deferred annuity and a single premium immediate annuity. One annuity repays you a set sum of money each and every month over a specified period of time. The other annuity is left in place to grow on a fixed interest basis, with the goal being that by the time funds in your immediate annuity are depleted, the single premium deferred annuity will be restored to your original starting principal. This allows you to then restart the process with new prevailing interest rates.

Standard Deviation (3 year): A statistical measure of a subaccount's range of performance. When an annuities subaccount has a high degree of deviation, chances are greater that it will fluctuate.

Standard & Poor's 500 Index - S&P 500: An index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most commonly used benchmarks for the overall U.S. stock market. The Dow Jones Industrial Average (DJIA) was at one time the most renowned index for U.S. stocks, but because the DJIA contains only 30 companies, most people agree that the S&P 500 is a better representation of the U.S. market. In fact, many consider it to be the definition of the market. The S&P 500 gives investors an idea of the overall movement in the U.S. equity market.

Subaccounts: The various investment portfolios in which your annuity funds are invested. You choose which subaccounts you want your money invested in and how much you want to allocate to each.

Subaccount Investment Objective: Identifies a subaccount's investment type (for example, aggressive growth, balanced, money market or corporate bond.

Subaccount Net Assets: The assets of a subaccount expressed in millions of dollars.

Surrender Charges: A fee levied on a life insurance policyholder upon cancellation of his or her life insurance policy. The fee is used to cover the costs of keeping the insurance policy on the insurance provider's books.

Tax-Deferred Annuity: Annuities available for purchase by employees of certain non-profit and public education institutions as described in IRC §501(c)(3). Money used to purchase the annuity is not taxable as income until annuity payments begin, usually at retirement. Also known as a Tax-Sheltered Annuity (TSA).

Term certain annuity: An annuity with income payments over a set number of years.

Three-month total return: This number is a percentage figure that reflects the annuity subaccount's previous 3-month return (gain or loss).

The S&P MidCap 400: The S&P MidCap 400 Index tracks a diverse basket of medium-sized U.S. firms. A mid-cap stock is broadly defined as a company with a market capitalization ranging from about $2 billion to $10 billion. Although the S&P 400 is not as popular as some of the larger indices (such as the S&P 500), it is an important benchmark for many fund managers who invest in this segment. This index contains solid firms with good track records that are simply not large enough to be included in the much larger S&P 500 index.

Underlying Portfolios: The stocks, bonds, cash equivalents or other investments purchased with the money you invest in an annuity.

Validation: The process of ensuring that entries and selections made by the user comply with the parameters set by the carrier, producing a (valid) case that meets the carrier specifications for the product being illustrated.

Variable Annuity: A form of annuity contract sold by life insurance companies that allows the contract owner to select the investment funds and assume the investment risk. Variable annuities guarantee a payment, usually at retirement. The amount of the payout will vary, however, with the value of the underlying investment funds. Variable annuities may only be sold through individuals, who in addition to being licensed life insurance agents, are registered representatives. Both deferred and immediate variable annuity contracts are available.

Variable Payment Plan: An annuity plan payout option that is tied into the performance of the securities markets. The amount of each payment will fluctuate according to the performance of the underlying funds. Compare to Fixed Payment Plan.

Withdrawal Charge: The amount deducted from the accumulation or account value to produce the surrender value. Generally, only applies to back load products. Also known as Surrender Charge.