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Annuity Terminology Explained

  1. Accumulation Unit Value: An annuity unit value, a valued measurement of an investment that accumulates during a contractual period, continues to grow with each financial contribution into an individual annuity account. An annuity unit value may also refer to a reinvestment of the trust’s income directly into the trust fund, rather than as cash to the investor.
  2. Accumulation Phase: The accumulation phase refers to an annuitant’s payment distribution to the insurance company for rebuilding the annuity’s overall value in a tax-deferred manner. Acquiring the necessary information about the accumulation phase will help assess and avoid confusion as the investor saves money for retirement.
  3. Annuitant: An annuitant‘s, or the annuity owner, life expectancy is calculated to determine the payment amount on the annuity.
  4. Annuity: An annuity, a contract issued by a life insurance company, provides tax deferral of investment income until the annuitant withdraws from the contract. An annuity may also come as a contract or agreement where the annuitant receives fixed payments on an investment over the course of his or her life time.
  5. Annuitization: An annuitization refers to a payout option in the form of individual payments, instead of receiving it all in one lump sum. Some payout options include life time payment guarantees, or payments spread out through an agreed number of years.
  6. Arbitrage: Arbitrage usually refers to an attempt to profit by exploiting price differentials of identical or similar financial investment structures throughout various markets.
  7. Assets: An asset refers to cash or non-cash items that can be converted to cash or market value. Assets include stocks, bonds, mortgage loans, real estate, policy loans, cash, annuities, and other financial investments.
  8. Asset Protection Trust: An Asset Protection Trust grants fiduciary control over properties belonging to a single individual or institution for the benefit of the beneficiaries. An Asset Protection Trust applies to annuities and other financial investments.
  9. Backup Withholding: An annuity backup withholding refers to an imposition of rules regarding taxpayer identification numbers when an individual has not met them. The Internal Revenue Service may also issue a backup withholding on payments to the investor. Investors can claim backup withholding on their federal income tax return.
  10. Beneficiary: A beneficiary receives payments after the death of an annuitant or annuity owner.
  11. Beneficial Owner: A beneficial owner refers to an individual who obtains the benefits of owning a security or property, even if the title is not in their name.
  12. Bequest: A bequest refers to a specific sum, percentage, or residue of an estate in the form of cash, securities, life insurance funds, real estate, and personal property. A bequest may be initiated through a will or living trust.
  13. Certificate of Deposit: A certificate of deposit (CD) refers to a short and medium-term FDIC-insured instruments distributed by banks savings and other loans. A CD offers a low risk factor with low returns.
  14. Charitable Annuity: A charitable gift annuity, a contract between a donor and a foundation, guarantees that the foundation will distribute payments of annuity towards the cause. A charitable annuity owner may specify an immediate or deferred annuity.
  15. Charitable Lead Trust: A charitable lead trust provides income to a foundation for a specified number of years. At the end of aforementioned terms, the principle will return to the donor or donors.
  16. Compounding of Gains: The compounding of gains refers to accrued interest applied to an individual’s policy that is added to the principle and previously accrued interest in prior years.
  17. Cost of Insurance PS58: Under Section 403(b) of a tax-deferred annuity, all contributions given toward the principle of a life insurance policy must be included in the annual gross income for the year that the payments are made.
  18. Deferred AnnuitiesDeferred annuities offer contracts for individuals seeking tax-deference over the course of many years. Tax-deferred annuities do not become payable until years after its purchase, unlike the terms of an immediate annuity. A single or regular premium becomes capitalized during the deferred period. Deferred annuities usually refer to payments being made to the annuitant at a later date.
  19. Employer Plan: An employer plan, or a retirement plan based on tax qualifications, allows employers to take an advantage and distribute to benefit employees. Employer and qualified retirement plans are regulated and subject to IRS stipulations.
  20. Endowment: An endowment fund requires a large sum of the principle to be funneled toward the principle, while placing restrictions on a small percentage of the fund for spending. The endowment fund becomes a multi-faceted fund for whatever the donor wishes to achieve.
  21. Estate Planning: Estate planning refers to the preparation of plan and disposition of an individual’s personal property before or after death, including wills, trusts, gifts, and power of attorney.
  22. Equitable Owner: An equitable owner, a beneficiary of a property held in a trust, has a superior title to the property and may require the legal owner to transfer all rights to them.
  23. Equity Indexed Annuity: An equity indexed annuity yields returns based upon the performance of an equity market index, such as the S&P 500, DJIA, or NASDAQ. The overall investment has protections from losses in the equity market, while all financial gains add to the annuity’s return yields.
  24. 401 (k): 401(k) plan, an employer-sponsored retirement savings plan, allows employees to withhold and invest a portion of their income before taxes. Employers may contribute to 401(k) plans based on a percentage.
  25. 403 (b): 403(b) plan refers to a tax-deferred retirement savings plan with similarities to 401(k) aimed at teachers and employees of non-profit organizations. Investors contribute to annuity contracts with insurance or mutual fund companies.
  26. Fixed Annuity: A fixed annuity refers to an investment instrument offered by various insurance companies that will guarantee a fixed stream of payables over the life of the annuity. The insurer takes the investment risks, instead of the insured party.
  27. Fixed Deferred Annuity: A fixed deferred annuity refers to a guarantee offered by an insurance company that contributes toward an interest rate that insures the safety of your principle and earnings. Interest rates are reset periodically with this type of investment.
  28. Immediate Annuity: An immediate annuity refers to an annuity that begins payment distribution right away to the insured. An immediate annuity generally comes in the form of a lump sum with payments beginning within a 12 month duration. Immediate annuities are based on a fixed interest rate.
  29. Indexed Annuity: An indexed annuity, an annuity based on the equity market index, is a hybrid of fixed and variable annuities. An indexed annuity’s value is based on the performance of equity market index indices, such as the S&P 500, Nasdaq, or the DJIA. The principle investment into the indexed annuity has protections against potential losses in the equity market; however, potential gains will add to the annuity’s returns.
  30. Individual Retirement Account: An Individual Retirement Account refers to a personal savings plan accentuated by tax advantages that allow an individual to set aside money for retirement. The insured’s contributions may be tax deductible, depending on the type of IRA and the insured’s personal financial circumstances.
  31. Life Annuity: A life annuity refers to an annuity pays the annuitant for as long as they are alive.
  32. Living Trust: living trust refers to a fund created for the trustor and administered by a third-party while the trustor is alive.
  33. Market Value Adjustment: market value adjustment refers to particular adjustments and deductions for the purpose of charging off a loss.
  34. Medicaid Annuity: A Medicaid annuity protects the patient’s personal assets against rising healthcare coverage, especially in nursing homes, by transferring all liquid assets into a Medicaid annuity. Some individuals living in nursing homes will transfer all liquidity into a Medicaid annuity, since Medicaid refuses to pay for nursing home care if the residents do not have the physical assets totaling more than 2,000 dollars in net worth. A third-party medical insurance company will transfer all the patient’s wealth into a Medicaid annuity to guarantee a monthly fixed income for the remainder of the patients’ life.
  35. Money Market Portfolio: A money market portfolio consist of various collections of investments owned by an individual or organization. A portfolio consists of various annuities, stocks, bonds, 401(k) plans, and other financial investments.
  36. Offshore Annuities: An offshore annuity enables people with high net worth assets to enjoy tax-deferred accumulation of wealth. The investment process for offshore annuities consists of placing an investor’s monies into separate accounts that range across several investment funds. Many offshore annuities companies offer life-long insurance protection, allowing any proceeds to be directly distributed to the many dependents and beneficiaries free of taxation.
  37. Pension Annuities: A pension annuity, a retirement savings plan setup by a corporation, labor union, government, or other organization for its benefit employees, may include profit-sharing plans, employee stock ownership plans, target benefit plans, money purchase plans, and stock bonuses.
  38. Private Annuity: A private annuity, a personal or restricted annuity, consists of one person or entity that is not in the business of selling annuities. In other words, a private annuity enables an arrangement between a client to transfer property to another in return for other client’s promise to make payments in fixed intervals for the remainder of the client’s life.
  39. Retirement Annuities: A retirement annuity refers to various types of investment instruments, but usually refer to an “old style” retirement savings plan. Retirement annuities are similar to personal pension plans. Retirement annuities can have an immediate, deferred, fixed, or variable structure.
  40. Roth Conversion: A Roth conversion refers to a rollover of funds from a traditional IRA to a Roth IRA if the client meets certain requirements. The taxable amount of the rollover funds will fall into the annual gross income that the conversion is made.

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