Glossary

1035

1035 Exchange -

The exchange of an existing annuity or life insurance policy to an annuity contract.

401(k)

401(k) -

An employer sponsored qualified plan which enables employees to make salary contributions on a pre-tax or after-tax basis.

A

A.M. Best -

A.M. Best is a Nationally Recognized Statistical Rating Organization (NRSRO) that evaluates the financial quality of institutions' debt, the claims-paying ability of life insurers, and the deposit credit rating of banks.

Annual Percentage Increase -

An option that can be purchased with an annuity that provides for an automatic yearly increase of the monthly income based on a specified percentage. The cost of this option is reflected in the quotes provided by insurance companies. This option is not linked to inflation.

Annuitant -

The person entitled to receive income payments from the annuity.

Annuity -

An annuity is a contract in which an individual agrees to pay a lump sum premium to an insurance company and receives, in exchange, a regular stream of income from the insurance company for life or for a specified number of years. Annuities are designed to protect against the risk of living longer than expected and outliving one's savings.

Annuity Payout Period -

The period of time during which money is paid out of an annuity. Examples are lifetime, 5, 10, 15, or 20 years.

Asset -

A resource of economic value that is owned by an individual or entity, and is meant to provide future benefit.

B

Beneficiary -

The person(s) designated by the annuitant to receive money upon the death of the annuitant and/or joint annuitant if death occurs before the end of the annuity term. The annuitant decides who the beneficiary will be and the beneficiary can generally be changed at any time.

C

Comparative Quote -

The comparative quote allows the annuitant to compare their requested quote to a similar annuity option.

Cost Basis -

The amount of after-tax dollars originally invested in an investment vehicle.

D

Deferred Income Annuity -

A long-term contract between an annuitant and an insurance company for which the annuitant pays a lump sum premium payment to the insurance company. The insurance company converts the assets into a stream of guaranteed monthly income payments for life or a specified fixed period of time. A Deferred Income Annuity enables the annuitant to defer payments for a duration of 13 months to 40 years. Prior to the income start date the death benefit would be return of premium. After the income start date the death benefit is determined by the annuity type selected at the time of purchase.

Defined Benefit Plan -

A retirement plan in which the sponsoring company provides a certain guaranteed benefit to participants based on a pre-determined formula.

Defined Contribution Plan -

An employer-sponsored plan (401k, 403b, 457, etc.) by which contributions are made to individual participant accounts, and the final benefit consists solely of assets (including investment returns) that have accumulated in these individual accounts. Depending on the type of defined contribution plan, contributions may be made either by the company, the participant or both.

Direct Rollover -

A transfer that qualifies as a rollover, but is done directly from one company to another. Usually, it is from a qualified retirement plan into an IRA. It is reportable, but not taxable. The annuitant can avoid having taxes withheld from the eligible distribution by choosing the direct rollover option.

Death Benefit -

If the annuitant passes away before the income start date, the initial deposit amount would be returned to a designated beneficiary.

E

Estimated Deposit Date -

The last date that the insurance company expects to receive the lump sum deposit to be invested in an annuity, along with the completion of all required paperwork. Quotes through Income Solutions® are based off of this estimated deposit date.

Exclusion Ratio/Amount -

The Exclusion Ratio/Amount is an estimate provided by the insurance company of the portion of each annuity payment that may not be subject to income tax.

F

Fixed Deferred Annuity -

An annuity contract between an annuitant and an insurance company for which the annuitant pays a lump sum premium to the insurance company. The insurance company offers a guaranteed interest rate for the life of the policy, regardless of market volatility. Income Solutions® offers 4, 5, and 7 year fixed deferred annuity products. This type of annuity contract enables the annuitant to withdraw up to 10 percent of the value of the annuity each year without penalty. However, withdrawal may be subject to tax.

Fixed Period Annuity -

Single -

Beginning on the income start date (the date of the first payment) the annuitant will receive a monthly payment for the fixed period selected upon purchase (5, 10, 15, or 20 years). The Annuitant is not guaranteed a lifetime income by the insurance company. Income is only guaranteed by the insurance company for the fixed period selected at the time of purchase. If the Annuitant dies before the end of the fixed period, the designated beneficiary receives the remaining monthly payments.

Joint and Survivor -

Joint and Survivor is not available with a fixed period only annuity.

Free Look Period -

The period of time in which an annuity contract owner can review the details of the contract and cancel without penalty. The length of time varies by state.

G

H

I

Individual Retirement Account (IRA) -

An account which enables individuals to contribute pre-tax dollars towards investments that can grow on a tax-deferred basis.

Immediate Income Annuity -

A long-term contract between an annuitant and an insurance company for which the annuitant pays a lump sum premium payment to the insurance company. The insurance company converts the assets into a stream of guaranteed monthly income payments for life or a specified fixed period of time. An Immediate Income Annuity provides income immediately after the premium is received, typically within 30 days from the date of deposit. However, the annuitant can choose to defer payments for up to 12 months after the date of purchase.

Income Replacement Ratio -

The percentage of income that an individual needs to maintain the same standard of living during each year of retirement. This ratio is generally less than 100 percent, because some of an individual's expenses (i.e., taxes, commuting costs, savings needs) decrease after retirement. The desired replacement ratio will vary by individual needs and circumstances.

Income Start Date (Annuity Start Date) -

When purchasing an annuity through Income Solutions®, the individual must specify the month and year that they want to begin receiving monthly payments from the annuity. The income start date must be the first day of a calendar month unless purchasing longevity insurance which begins on the annuitant's 85th birthday.

Institutional Annuity Pricing -

Institutional pricing gives individuals the same type of buying power that large organizations have. The Income Solutions® program was designed to take advantage of this cost-effective pricing method to provide generally more favorable pricing and pass that on to each individual purchasing an annuity.

IRA Rollover -

An option that allows you to transfer your money from a qualified retirement plan directly to an IRA. You never come into direct contact with the money and it is reportable, but not taxable. The annuitant can avoid having taxes withheld from the eligible distribution by choosing the direct rollover option.

J

Joint Annuitant -

The person named by the primary annuitant at the time of purchase to receive payments following the death of the primary annuitant in a joint and survivor annuity. In most cases, the payment to the joint annuitant is a specified fraction of the original payment amount, which is selected upon purchase of the annuity. A joint annuitant may be a spouse or non-spouse. The joint annuitant cannot change after the purchase of the annuity, as the quote is based on this person's gender and age.

Joint and Survivor Annuity -

An annuity issued on two individuals under which monthly payments continue in whole (100%) or in part (at 50%, 66.67%, or 75%, selected at the time of purchase) until both individuals die or for the remainder of the annuity. Survivor benefits will be based off of the death of the primary annuitant.

K

L

Life Annuity with a Cash Refund Option -

Single -

Beginning on the income start date (the date of the first payment) the Annuitant will receive a monthly payment for his or her lifetime. If the Annuitant dies before the original premium payment has been paid back in monthly payments, the remaining amount will be paid to the designated beneficiary in one lump-sum.

Joint and Survivor -

Beginning on the income start date (the date of the first payment) the annuitant and joint annuitant will receive a monthly payment for life. If the annuitant dies first, the joint annuitant will continue to receive a specified percentage (50%, 66.67%, 75% or 100%) of the annuitant's monthly payment for the remainder of his or her lifetime. If the joint annuitant dies first, the annuitant continues to receive their designated monthly payment, unchanged, for the remainder of his or her lifetime. If both the annuitant and joint annuitant die before the original premium payment has been paid back in monthly payments, the remaining amount will be paid to the designated beneficiary in one lump-sum.

Life Annuity with Fixed Period -

Single -

Beginning on the income start date (the date of the first payment) the annuitant will receive a monthly payment for his or her lifetime. If the annuitant dies before the end of the fixed period they selected upon purchase, (5, 10, 15 or 20 years), their designated beneficiary will continue to receive monthly payments until the end of that fixed period. If the annuitant dies after the end of the fixed period, there is no death benefit.

Joint and Survivor -

Beginning on the income start date (the date of the first payment) the annuitant and joint annuitant will receive a monthly payment for life. If the annuitant dies before the end of the fixed period they selected upon purchase (5, 10, 15 or 20 years), the joint annuitant will continue to receive full monthly payments until the end of that fixed period. At the end of the fixed period selected, the joint annuitant will continue to receive the specified percentage selected upon purchase (50%, 66.67%, 75% or 100%) of the annuitant's monthly payment for the remainder of his or her lifetime. If the joint annuitant dies first, the annuitant continues to receive their designated monthly payment, unchanged, for the remainder of his or her lifetime. If both the annuitant and joint annuitant die before the end of the fixed period, the designated beneficiary receives full monthly payments for the remainder of that fixed period.

Life Only Annuity with No Refund -

Single -

Beginning on the income start date (the date of the first payment) a monthly payment will be made to the annuitant for his or her lifetime. Upon the annuitant's death, all payments cease. There is no death benefit.

Joint and Survivor -

Beginning on the income start date (the date of the first payment) the annuitant and joint annuitant will receive a monthly payment for life. If the annuitant dies first, the joint annuitant will continue to receive a specified percentage (50%, 66.67%, 75% or 100%) of the annuitant's monthly payment for the remainder of his or her lifetime. If the joint annuitant dies first, the annuitant continues to receive their designated monthly payment, unchanged, for the remainder of his or her lifetime. There is no death benefit after both the annuitant and joint annuitant die.

Liquid Assets -

An asset that can easily be converted to cash without incurring significant loss of value.

Longevity Insurance -

Longevity Insurance is a long-term contract between an annuitant and an insurance company for which the annuitant pays a lump sum premium to the insurance company. The insurance company converts the assets into a stream of guaranteed monthly income payments for life. Monthly income payments for Longevity Insurance begin on the annuitant's 85th birthday. Longevity Insurance does not offer a death benefit. There is no return of premium to beneficiaries should the annuitant(s) pass away before the income start date.

Lump Sum Deposit -

A single payment made to the insurance company for the purchase of an annuity.

M

Moody's Investors Service -

Moody's is a Nationally Recognized Statistical Rating Organization (NRSRO) that evaluates the financial quality of institutions' debt, the claims-paying ability of life insurers, and the deposit credit rating of banks.

N

Net Worth -

The value of household assets (such as stocks, bonds, bank accounts) minus liabilities (such as loans, credit card balances, and personal lines of credit). Do not include primary residence, autos and furnishings as assets, and do not include mortgage on primary residence as a liability.

Non-qualified (after-tax) Assets -

Assets that have been taxed. (i.e. savings account).

O

Owner -

The individual or entity that is funding and structuring the annuity contract. The Owner has all rights to the contract, and is also responsible for any tax implications of the annuity purchase.

P

Premium -

The amount of money invested into an annuity contract.

Principal -

The amount of money you invest.

Primary Annuitant -

The person entitled to receive income payments from the annuity.

Q

Qualified (pre-tax) Assets -

Assets that have not been taxed, and are held in a tax-deferred account (i.e. 401(k), 403(b), 457, or traditional IRA account).

Qualified Longevity Annuity Contract (QLAC) -

A Deferred Income Annuity (DIA) or Longevity Insurance contract can be designated as a Qualified Longevity Annuity Contract (QLAC). The income start date for a DIA QLAC must be after the age of 72 (no later than the 1st day of the month following the annuitant's 85th birthday), while the only available income start date for a Longevity Insurance QLAC is on the annuitant's 85th birthday. The premiums per individual are limited to the lesser of $135,000 (lifetime) or 25% of your total IRA balances (excluding Roth IRAs and inherited IRAs) as of December 31st of the year prior to purchase. Dollars from either IRAs (excluding Roth IRAs and inherited IRAs) or Qualified accounts can be used to fund a QLAC. It is the annuitant's responsibility to ensure QLAC premium limitations are met.

R

Rating Agency -

A firm that evaluates the financial quality of institutions' debt, the claims-paying ability of life insurers, and the deposit credit rating of banks. Examples of Nationally Recognized Statistical Rating Organizations (NRSRO) include A.M. Best, Moody's Investors Service, and Standard & Poor's (S&P) Ratings Group.

Required Minimum Distribution (RMD) -

The minimum amount the IRS requires to be withdrawn annually from Qualified (pre-tax) accounts such as traditional IRA's, Simplified Employee Pension (SEP) IRA's, SIMPLE IRA's, and 401(k)'s by April 1st of the year following the year which an individual has obtained the age of 72.

Retail Annuity Pricing -

Pricing offered to individuals purchasing an annuity from an insurance company or agent that does not take into account group discount rates and which can include additional distribution, administrative, and sales charges.

Roth 401(k) -

An employer-sponsored savings account that enables employees to make contributions using after-tax dollars up to the contribution limit of the plan. Any earnings or withdrawals are tax-free after the investor has reached the age of 59 1/2.

Roth IRA -

An individual retirement account that enables an individual to invest after-tax dollars up to a specified amount each year. Any earnings or withdrawals are tax-free after the investor has reached the age of 59 1/2.

S

Source of Funds -

The source of premium used to fund the annuity contract. Examples of funding sources include:

  • Pre-tax Retirement Assets (Qualified: e.g. 401(k), 403(b), 457, or IRA account)
  • After-tax Assets (Non-Qualified: e.g. checking, or savings account)
  • 1035 Exchange (Exchange of an annuity or life insurance policy for an annuity)
Standard & Poor's Ratings Group -

S&P is a Nationally Recognized Statistical Rating Organization (NRSRO) that evaluates the financial quality of institutions' debt, the claims-paying ability of life insurers, and the deposit credit rating of banks.

State of Residence -

The state in which you reside the majority of the time, and have a permanent residence.

Suitability -

A requirement to determine whether an annuity purchase is appropriate or suitable for an individual based upon their personal goals and financial situation.

Survivor Benefit Percent -

The Percent of the initial monthly income the joint annuitant receives after the primary annuitant's death.

T

Transitioning Investor -

Individuals who have reached the end of, or will soon be reaching the end of, their peak earning years. They are transitioning from earning income to replacing or supplementing their income.

U

V

Variable Annuity -

Variable annuities do not offer a set rate of return. The performance of a variable annuity is determined by the performance of the underlying stocks, bonds, money markets, and other fixed-rate instruments in which your money is invested. Income Solutions® does not offer variable annuity products.

W

X

Y

Z

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