LIBRARY CENTER What is an annuity? Annuity Dictionary Common Questions

Accumulation period The time prior to an annuity’s payout period when money builds up in the annuity contract. Annuitant The person whose life expectancy is used to determine the payout of an annuity. Annuitize Converting the value of an annuity contract into a stream of income payouts. Annuity A retirement product that allows you to save for your future on an income tax-deferred basis and then allows you to choose a payout option that best meets your need for income when you retire—lump sum, income for life, or income for a certain period of time. Annuity Due A contract in which annuity payments are made at the beginning of each payment period. The first payment is applied on the contract effective date. Days Rate Held on Rollovers If you rollover an existing annuity to a new annuity with a different insurance company, the new company will normally hold the rate for a period of time. If the money is not received from the old company within that period, the new annuity will receive the rate in effect on the date the money is received. Deferred Annuity A contract in which annuity payouts begin at a future date. Effective Annual Yield Most companies compound and credit interest daily. The rate shown is the effective annual yield after compounding the daily nominal rate. Some companies pay a first year bonus on their interest to encourage new business. The Effective Annual Yield (EAY) includes the bonus. Equity-Indexed Annuity A variation of the fixed annuity. With this type of annuity, your account accumulates at a minimum fixed rate of return. Your account also may earn additional interest based on the performance of an equity index. Generally, the indices used are widely reported common stock indices, the most prevalent being the Standard & Poor’s 500 Composite Stock Price Index. Fixed Annuity An annuity contract in which the premiums you pay are credited with a fixed rate of return by the life insurance company, and the company guarantees a fixed payout every month. Flexible-Premium Deferred Annuity An annuity contract that permits varying the amount and frequency of premium payments from year to year for payouts that will occur in the future. Immediate Annuity A contract in which annuity payments are made at the end of each payment period. Payment periods may be monthly, quarterly, semi-annually, or annually. Initial Rate Period The period of time, usually listed in years, that the company agrees to pay the initial crediting rate. Load Any sales fees or charges you pay in purchasing an annuity contract. Minimum Rate Guarantee After Initial Period This minimum rate guarantee serves two purposes: It provides a minimum interest rate a company may credit to an annuity after the initial rate period. It is also the rate that insurance company actuaries use to calculate reserve requirements in order to meet state insurance laws. Payout Period The period during which you receive the income from your annuity contract. Principal The amount you pay into your annuity contract as distinguished from the earnings that are credited to it. May also be referred to as purchase payments or contributions. Surrender Penalty Penalty applied to any amount exceeding the Free Annual Withdrawal Amount or to multiple withdrawals within the same contract year if they are not allowed by the terms included in the contract. In some cases, if the entire annuity is surrendered, the penalty will be applied to the full value of the annuity.