EIA Terms Glossary
A | B | C | D | E | F | G | H | I | L | N | P | Q | S | T | V | W
Accumulated Value: the full value of the annuity contract; principal plus gain.
Annual Reset Method: The S&P Index value on the previous policy anniversary date is compared to the present S&P Index value each policy year.
Annuitization: waiving access to your accumulated dollars in return for guaranteed payments.
Annuitization Factor: the rate per thousand used to determine the periodic payout of an annuity.
Annuity: a contract designed to accumulate premiums plus interest prior to maturity, then distribute the proceeds through a series of regular payments.
Averaged Performance Method: An average of the S&P Index is calculated either daily, monthly, or annually, over a specified period, usually one year. This average is then compared to a start-point value.
Back-end Load: any fees deducted when the contract is terminated; i.e. surrender charges.
Bailout: an interest protection provision guaranteeing the client liquidity, without penalty, if the renewal interest rate is ever declared below the stated bailout rate; this penalty-free surrender period is usually limited to 30 days from the date of notice.
Beneficiary:the party who receives proceeds (in most annuity contracts) if owner or annuitant dies.
CAP: An overriding maximum percentage that can be credited in any single year or term.
Commuted Value: the present value of future guaranteed payments.
Compounding of gains: Interest is paid not only on the initial deposit but also on any interest accumulated from one period to the next.
Contract Term: The length of time that an account is subject to surrender charges.
Corporate-owned Annuity: an annuity owned by a corporation or business. The interest is not tax-deferred.
Cost Basis: the original investment in a non-qualified annuity, prior to any transfers of the account; the cost basis is used to determine the tax excludable portion.
back to top
Death Benefit: the amount paid to beneficiary upon annuitant's death.
Deferred Annuity: a tax favored annuity account, deferring periodic payments until a later date.
Direct Transfer: a tax-free transfer of qualified funds from one custodian to another custodian.
back to top
Equity Indexed Annuities: Investment vehicle for consumers who want to achieve stock market-linked gains, no market risk, minimum guaranteed values and tax deferral.
Exclusion Ratio: the ratio of the tax excludable portion of an annuity payment to the total annuity payment (always non-qualified funds only).
back to top
Fixed Annuity: an annuity contract with a guaranteed and projected rate of interest; a current life insurance license is all that is required to sell a fixed annuity.
Flexible Premium: multiple deposits made at regular intervals, or at the clients discretion to fund an annuity contract.
Front-end Load: any fees deducted from the premium, before deposit, i.e. administrative or sales fees.
back to top
Guarantee of Principal: provision in some annuity contracts that guarantee owners that they will get their initial premium back if they change their minds shortly after purchase.
Guaranteed Minimum Interest Rate: mandated by states that annuity contracts provide some sort of minimum guarantee for life of contract; rates of 2% and 3% are typical.
back to top
High Water Mark Method: The difference between the highest Index value achieved on any of the contract anniversaries, is compared to the Index value on the policy start date. At the end of the contract term, the account is credited with the highest S&P Index value during the term multiplied by the participation rate and credited as interest.
back to top
Immediate Annuity: a series of periodic payments beginning within one year of the deposit of funds.
Interest Protection Provision: see bailout.
Interest Spread Method: A "spread" percentage is deducted from the S&P Index appreciation and the net percentage credited as interest. Example: If the S&P Index increased by 15%, and the spread is 2%, the interest percent credited would be 13%.
IRA Rollover: a way to reposition one IRA to another IRA account and defer taxation.
back to top
Life Expectancy Retirement Option (LERO): the method of calculating the minimum distribution which must be made each year from a qualified annuity in order to satisfy IRS requirements after age 70 1/2.
Life Only: a settlement option that owner may select upon annuitization. Payments continue for life of annuitant, payments stop when annuitant dies.
Life and 10 Year Certain: a settlement option that owner may select upon annuitization; payments continue for life of annuitant like Life Only option but 10 years of payments are guaranteed.
Life Installment Refund: a settlement option that owner may select upon annuitization. Payments continue for life of annuitant like Life Only option, but beneficiary may continue to receive payments until insurance company has paid out payments equaling the initial premium.
back to top
Nonqualified Annuity: an annuity whose premiums are paid with after-tax dollars. When proceeds are distributed, only the interest portion will be taxable.
back to top
Partial Withdrawal: the amount an owner can withdraw from their annuity.
Participation Rate: A percentage of the gain of the S&P 500 Index credited to the accumulation value for a certain period. The participation rate is declared by the insurance company and may be guaranteed annually or for the contract term. Example: If the Index increased 10% in one year, and the Participation Rate was 90%, the gain for that year would be 9%. (Sometimes called the Interest Index Factor).
Penalty-Free Withdrawals (Annuity Contracts): a partial withdrawal from the contract value, during the surrender charge period, from which the company will not subtract a surrender charge.
Point-to-Point Method: The S&P Index value on the date of issue is compared to the Index valued at the end of the contract term. This percentage is then multiplied by the participation rate and credited as interest.
back to top
Qualified Annuity: an annuity that is funded with pre-tax contributions. Payments are generally 100% reportable as income in the tax year the payment is received.
Qualified Funds: funds deposited in retirement plans before taxes are deducted (IRA, SEPs, Keogh Plans, etc.). All withdrawals totally taxable.
back to top
S&P 500 Index: The Standard & Poor€™s Corporation publishes this index which measures the current price behavior of a representative group of 500 stocks in relation to a base value set at an earlier point in time (1941-1943).
Section 1035(a) Exchange: the tax-free exchange of one nonqualified annuity contract or life insurance policy for another, generally with a different company (life to life; life to annuity; annuity to annuity).
Serial Issue: multiple annuity contracts, issued by the same company within a twelve month period to the same owner.
Settlement Options: the methods by which the insurer may pay policy proceeds to the annuitant, contract owner, policy owner or beneficiary.
Simple Interest: Interest paid only on the actual balance for the actual amount of time it is on deposit.
Simple IRA: A SIMPLE IRA is a retirement plan funded by employee pre-tax salary deferrals and required employer contributions. Employees reduce their current taxable earnings, while saving for retirement at the same time. This benefit enhances employee retention.
Single Premium: a single deposit made to fund an annuity. Additional premiums cannot be added to this policy.
Split Annuity: combination of two annuities, one immediate annuity and one deferred annuity. Immediate provides guaranteed monthly income for 5, 7, or 10 years on a tax advantaged basis. During the interim, the moneys deposited into the deferred annuity are increasing; the ultimate goal is that the value of the deferred annuity will equal the sum of dollars initially paid into the split annuity.
Surrender Charges: a charge deducted from the accumulated value at the time of full or partial surrender of an annuity contract.
Surrender Value: the value of the annuity contract after surrender charges have been deducted from the accumulated value.
back to top
Tax Deferral: major benefit of annuities. Paying taxes later instead of now. Allowing dollars you would normally pay in taxes to stay inside of the annuity to accumulate additional compound interest for the purchaser.
Trust: a written document, creating a legal entity to take over ownership of property, documents, request or other assets on behalf of the grantor.
Trustee: one entrusted with the property of another.
back to top
Variable Annuity: an annuity contract in which the account value fluctuate according to market performance; there is no minimum interest rate guarantees, nor projections of future rates; the sale of variable annuities is governed by the Securities and Exchange Commission.
back to top
Withdrawal Privileges: usually refers to the right of the owner to make withdrawals from the annuity, without surrender penalty, up to a certain percentage of accumulated value.
back to top
A | B | C | D | E | F | G | H | I | L | N | P | Q | S | T | V | W
Accumulated Value: the full value of the annuity contract; principal plus gain.
Annual Reset Method: The S&P Index value on the previous policy anniversary date is compared to the present S&P Index value each policy year.
Annuitization: waiving access to your accumulated dollars in return for guaranteed payments.
Annuitization Factor: the rate per thousand used to determine the periodic payout of an annuity.
Annuity: a contract designed to accumulate premiums plus interest prior to maturity, then distribute the proceeds through a series of regular payments.
Averaged Performance Method: An average of the S&P Index is calculated either daily, monthly, or annually, over a specified period, usually one year. This average is then compared to a start-point value.
Back-end Load: any fees deducted when the contract is terminated; i.e. surrender charges.
Bailout: an interest protection provision guaranteeing the client liquidity, without penalty, if the renewal interest rate is ever declared below the stated bailout rate; this penalty-free surrender period is usually limited to 30 days from the date of notice.
Beneficiary:the party who receives proceeds (in most annuity contracts) if owner or annuitant dies.
CAP: An overriding maximum percentage that can be credited in any single year or term.
Commuted Value: the present value of future guaranteed payments.
Compounding of gains: Interest is paid not only on the initial deposit but also on any interest accumulated from one period to the next.
Contract Term: The length of time that an account is subject to surrender charges.
Corporate-owned Annuity: an annuity owned by a corporation or business. The interest is not tax-deferred.
Cost Basis: the original investment in a non-qualified annuity, prior to any transfers of the account; the cost basis is used to determine the tax excludable portion.
back to top
Death Benefit: the amount paid to beneficiary upon annuitant's death.
Deferred Annuity: a tax favored annuity account, deferring periodic payments until a later date.
Direct Transfer: a tax-free transfer of qualified funds from one custodian to another custodian.
back to top
Equity Indexed Annuities: Investment vehicle for consumers who want to achieve stock market-linked gains, no market risk, minimum guaranteed values and tax deferral.
Exclusion Ratio: the ratio of the tax excludable portion of an annuity payment to the total annuity payment (always non-qualified funds only).
back to top
Fixed Annuity: an annuity contract with a guaranteed and projected rate of interest; a current life insurance license is all that is required to sell a fixed annuity.
Flexible Premium: multiple deposits made at regular intervals, or at the clients discretion to fund an annuity contract.
Front-end Load: any fees deducted from the premium, before deposit, i.e. administrative or sales fees.
back to top
Guarantee of Principal: provision in some annuity contracts that guarantee owners that they will get their initial premium back if they change their minds shortly after purchase.
Guaranteed Minimum Interest Rate: mandated by states that annuity contracts provide some sort of minimum guarantee for life of contract; rates of 2% and 3% are typical.
back to top
High Water Mark Method: The difference between the highest Index value achieved on any of the contract anniversaries, is compared to the Index value on the policy start date. At the end of the contract term, the account is credited with the highest S&P Index value during the term multiplied by the participation rate and credited as interest.
back to top
Immediate Annuity: a series of periodic payments beginning within one year of the deposit of funds.
Interest Protection Provision: see bailout.
Interest Spread Method: A "spread" percentage is deducted from the S&P Index appreciation and the net percentage credited as interest. Example: If the S&P Index increased by 15%, and the spread is 2%, the interest percent credited would be 13%.
IRA Rollover: a way to reposition one IRA to another IRA account and defer taxation.
back to top
Life Expectancy Retirement Option (LERO): the method of calculating the minimum distribution which must be made each year from a qualified annuity in order to satisfy IRS requirements after age 70 1/2.
Life Only: a settlement option that owner may select upon annuitization. Payments continue for life of annuitant, payments stop when annuitant dies.
Life and 10 Year Certain: a settlement option that owner may select upon annuitization; payments continue for life of annuitant like Life Only option but 10 years of payments are guaranteed.
Life Installment Refund: a settlement option that owner may select upon annuitization. Payments continue for life of annuitant like Life Only option, but beneficiary may continue to receive payments until insurance company has paid out payments equaling the initial premium.
back to top
Nonqualified Annuity: an annuity whose premiums are paid with after-tax dollars. When proceeds are distributed, only the interest portion will be taxable.
back to top
Partial Withdrawal: the amount an owner can withdraw from their annuity.
Participation Rate: A percentage of the gain of the S&P 500 Index credited to the accumulation value for a certain period. The participation rate is declared by the insurance company and may be guaranteed annually or for the contract term. Example: If the Index increased 10% in one year, and the Participation Rate was 90%, the gain for that year would be 9%. (Sometimes called the Interest Index Factor).
Penalty-Free Withdrawals (Annuity Contracts): a partial withdrawal from the contract value, during the surrender charge period, from which the company will not subtract a surrender charge.
Point-to-Point Method: The S&P Index value on the date of issue is compared to the Index valued at the end of the contract term. This percentage is then multiplied by the participation rate and credited as interest.
back to top
Qualified Annuity: an annuity that is funded with pre-tax contributions. Payments are generally 100% reportable as income in the tax year the payment is received.
Qualified Funds: funds deposited in retirement plans before taxes are deducted (IRA, SEPs, Keogh Plans, etc.). All withdrawals totally taxable.
back to top
S&P 500 Index: The Standard & Poor€™s Corporation publishes this index which measures the current price behavior of a representative group of 500 stocks in relation to a base value set at an earlier point in time (1941-1943).
Section 1035(a) Exchange: the tax-free exchange of one nonqualified annuity contract or life insurance policy for another, generally with a different company (life to life; life to annuity; annuity to annuity).
Serial Issue: multiple annuity contracts, issued by the same company within a twelve month period to the same owner.
Settlement Options: the methods by which the insurer may pay policy proceeds to the annuitant, contract owner, policy owner or beneficiary.
Simple Interest: Interest paid only on the actual balance for the actual amount of time it is on deposit.
Simple IRA: A SIMPLE IRA is a retirement plan funded by employee pre-tax salary deferrals and required employer contributions. Employees reduce their current taxable earnings, while saving for retirement at the same time. This benefit enhances employee retention.
Single Premium: a single deposit made to fund an annuity. Additional premiums cannot be added to this policy.
Split Annuity: combination of two annuities, one immediate annuity and one deferred annuity. Immediate provides guaranteed monthly income for 5, 7, or 10 years on a tax advantaged basis. During the interim, the moneys deposited into the deferred annuity are increasing; the ultimate goal is that the value of the deferred annuity will equal the sum of dollars initially paid into the split annuity.
Surrender Charges: a charge deducted from the accumulated value at the time of full or partial surrender of an annuity contract.
Surrender Value: the value of the annuity contract after surrender charges have been deducted from the accumulated value.
back to top
Tax Deferral: major benefit of annuities. Paying taxes later instead of now. Allowing dollars you would normally pay in taxes to stay inside of the annuity to accumulate additional compound interest for the purchaser.
Trust: a written document, creating a legal entity to take over ownership of property, documents, request or other assets on behalf of the grantor.
Trustee: one entrusted with the property of another.
back to top
Variable Annuity: an annuity contract in which the account value fluctuate according to market performance; there is no minimum interest rate guarantees, nor projections of future rates; the sale of variable annuities is governed by the Securities and Exchange Commission.
back to top
Withdrawal Privileges: usually refers to the right of the owner to make withdrawals from the annuity, without surrender penalty, up to a certain percentage of accumulated value.
back to top