When reading about insurance and financial products, you may encounter jargon and acronyms. We’re providing these definitions for informational and educational purposes only. Please discuss your specific situation or questions with an investment professional or go to the Financial Industry Regulatory Authority website for more information.
Common Investment Terms
A mathematician who calculates premiums, reserves, dividends, insurance, pension and annuity rates for insurance and financial services companies.
The person whose life is insured is the annuitant. The annuitant and the annuity owner may not be the same person.
The time you spend contributing to your annuity is the accumulation phase. The annuitization phase begins when you start receiving money from your annuity.
An insurance contract issued by a life insurance company that provides income at regular intervals for a defined period of time, such as a specific number of years or for life.
Spreading your investments between asset categories (i.e. stocks, bonds, cash or cash equivalents) may help minimize risk. This may happen in part because these investment categories respond to changing economic and political conditions in different ways. Please keep in mind that the use of asset allocation does not guarantee returns or insulate you from potential losses.
Contingent Deferred Sales Charge (CDSC)
An investment company may collect this fee if you withdraw money from your investment early in the contract. It compensates the company for the high cost they incur when setting up your account. The CDSC typically goes down over time and goes away altogether, when you reach to defined period for the contract.
Contract issue date
The date you sign paperwork to buy an annuity.
This annuity allows you to potentially grow your assets so they could provide a steady stream of income during retirement. When you purchase the annuity, you deposit money into it over a period of time and that money is invested. At a certain point, usually at retirement, you start receiving payments from the annuity, either in a lump sum or in installments.
Money you take from your financial account, such as an IRA. Also called a withdrawal.
Money gained on the principal in your financial accounts, such as an IRA.
With this type of annuity, the insurance company guarantees the rate of return and payout. Guarantees are subject to the claims-paying ability of the issuing insurance company.
You can convert a lump sum into payments for life or for a certain number of years from an immediate annuity. Payments begin immediately.
Individual retirement account (IRA)
IRAs are accounts that you own and fund through your own contributions. Two common types of IRAs are:
• Traditional IRAs – Contributions are made with pre-tax dollars, and earnings are tax-deferred. This means that you don’t owe taxes until the funds are withdrawn, usually at retirement.
• Roth IRAs – Contributions are made with after-tax dollars, so you don’t pay taxes on the money as it accumulates.
Money you’ve contributed to your financial account, such as an IRA.
These terms identify whether contributions are made with pre-tax or post-tax dollars. Qualified contributions come from money that hasn’t been taxed yet, such as money withheld from your paycheck for your 401(k). Nonqualified contributions come from money that has already been taxed, such as the check you write for your Roth IRA.
An optional rider added to your life insurance or annuity can offer additional coverage and protection on select products at an additional charge to fit your personal situation.
Single premium/single purchase payment
A single premium annuity is a deferred annuity that lets you put money into your annuity account only once, when you first purchase the product.
A variable annuity is a long-term investment product that provides a variable rate of return based on the performance of the investments that you select. A variable annuity is a contract between you and an insurance company, and it’s sold by prospectus. While it may take some time, you should read the prospectuses. They describe risk factors, fees and charges that may apply to you. Variable annuities have fees and charges that include mortality and expense, administrative fees, contract fees and the expense of the underlying investment options.
Withdrawal (also called a distribution)
The money you take from your financial account, such as an IRA. For retirement accounts, distributions made prior to age 59½ may be subject to a 10% penalty tax. All taxable distributions at any age are subject to ordinary income tax and surrender charges may apply. You may incur fees or penalties when you make a withdrawal, depending on the type of product and whether the account is qualified or non-qualified.
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