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Annuity Glossary

Annuity Glossary
Annuity FAQ
Annuity Calculators

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:

  1. It provides a minimum interest rate a company may credit to an annuity after the initial rate period.
  2. 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.

Some annuities include a Market Value Adjustment (“MVA”) if surrendered.

  1. If the contract rate is higher than current rates on new money, a positive MVA adjustment may be made in the cash value. Therefore, if rates go down after the purchase date, the penalty will be less than shown.

  2. If the contract rate is lower than current rates on new money, a negative adjustment is made in the cash value. Therefore, if rates go up after the purchase date, the surrender penalty will be higher than shown.

--- Penalty Waived with Payout Over
Most companies waive the surrender penalty if the cash value is paid out over a period of time or annuitized, usually five years or longer.

--- Penalty Waived @ Death Of
Some annuities waive all surrender penalties in the event of death of the annuitant or some waive penalties at death of the owner. Some waive penalties at the death of owner or annuitant. Some annuities do not waive penalties at death of the owner or annuitant, unless a payout of five years or longer is elected.

---* Medical Waiver Bail-Out
In certain circumstances, such as total disability or nursing home confinement, part or all of the surrender penalty may be waived on some annuities.

--- Sales and Maintenance Fees
There are no front-end sales charges with most annuities. If $10,000 is deposited into an annuity, the full $10,000 will be earning interest.

* Variable Annuity
A contract in which the premiums you pay are invested in bond and stock funds. Your selection of funds depends on the level of risk you want to assume. The account value reflects the performance of the funds you select. Over the long-term, variable annuities invested in equities generally reflect the growth and performance of the economy and can serve as a hedge against inflation.

* GILICO does not offer this product/feature.

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