All About Annuities
Choosing Annuities | Keeping Up
You can—and should—continue to track your portfolios’ performance.


The performance information you used to choose your investment portfolios to begin with is equally valuable for keeping track of how well those portfolios continue to do.

What’s Tracked?
You can track the performance of your investment portfolios because the insurance company reports weekly to the financial press the performance of the subaccounts that you invest in the portfolios.

Since these performance figures change constantly as the underlying investment portfolios increase or decrease in value, the evaluation process is a dynamic one. It’s also relative, since current performance figures are only meaningful in relation to past performance of the same portfolio, or the comparative performance of one portfolio with another.

What if You Don’t Track?
Some people follow a hands-off policy once they’ve chosen their investment portfolios, often because they are uncomfortable with making financial decisions. While their contracts may continue to provide acceptable returns, experts caution that there is a potential downside to this approach. For example, if you had emphasized bond portfolios when purchasing a contract in 1990 and transferred nothing to equity portfolios over the next several years, you would have missed out on the growth that accompanied the long bull market during this period.

Call the Companies
Most annuity companies have toll-free numbers you can call to get performance figures on individual portfolios within your variable annuity. Some lines are automated, so you can check in 24 hours a day, seven days a week. In addition, many of the companies update performance figures on their websites on a regular basis.

That doesn’t mean you should hover over the phone or stay glued to the screen. Like all investments, an annuity portfolio, especially an equity portfolio, may be volatile in the short term, moving higher or lower to reflect the performance of its underlying investments.

Since an annuity is a long-term commitment, daily changes are far less relevant than the pattern of performance over time. In fact, the longer the time frame that’s covered, the better you can tell how the portfolio will do in up and down markets.

Many financial advisors suggest that you rebalance your allocation on a regular basis, or arrange to have it done automatically. They suggest you rebalance both during the accumulation phase of a deferred variable annuity and after you begin to take variable income.

No Sweat, No Tears
It’s relatively easy to transfer assets from one investment portfolio to another within the contract. There are no income tax consequences when you make such a change, and most contracts permit a number of free transfers each year. That’s one of the features that people find attractive about a variable annuity. In addition, if you are putting money into your annuity on a regular basis, you might want to diversify into additional portfolios. Or as you grow more confident about making long-term commitments, you might switch from one style of investing to another. For example, you might begin by putting a large amount of money into a money market portfolio because it seems safe. But if you track the returns on that portfolio and on a portfolio investing in U.S. stocks, you might decide you’d be better off moving some of your assets so that you could benefit from the potentially stronger performance of the equities.

No Variable Projections
As you evaluate past performance of variable annuity portfolios, what you won’t find are projections of future performance. That’s because there is no way to provide those numbers.

 Making Changes
If you're tracking performance, you might decide to move away from one investment portfolio to another if:



Financial Planning
One approach to financial planning is to set aside one day a year to reassess where you stand. Some people do it on January 1—to start the new year on the right foot.

© 1999/2000 NAVA, National Association for Variable Annuities. All rights reserved.
Terms and Conditions

Accumulation Period:
The period when the owner of a deferred annuity makes payments into the contract and accumulates assets.
Accumulation Phase:
The period when the owner of a deferred annuity makes payments into the contract and accumulates assets.
Accumulation Units:
The shares of ownership you have in a variable annuity investment portfolio during the period you are saving for retirement. As you pay additional premiums, you buy additional units.
Accumulation Value:
The sum of permiums and earnings, minus charges under the contract and any withdrawals.
Annual Contract Fee:
An annual fee, typically $30 or $40, paid to the insurance comapny for administering the contract. The fee often is waived for contracts with higher account values.
Annuitant:
The person who receives income from an annuity. The annuitant’s life expectancy is used to figure the initial income amount the annuity pays.
Annuitization:
The election to start receiving regular payments from annuity. The annuity is said to be annuitized.
Annuitize:
To convert the accumulated value of an annuity into a stream of income, either for one or more lifetimes or a specific period of time.
Annuity:
A series of periodic payments.
Annuity Commencement Date:
The date income payments start. Also known as the annuity starting date and the maturity date.
Annuity Contract:
A legal agreement between you and an insurance company, sometimes called an annuity company.
Annuity Income Payments:
(or payouts) The regular payments received as a result of the election to annuitize an annuity contract.
Annuity Units:
The number of units you own in a variable annuity investment portfolio during the period you are taking income. The number of your annuity units is fixed, and does not change.
Assumed Interest Rate:
(AIR) The rate of interest an annuity provider uses in determining the amount of each variable annuity income payment. Also known as the benchmark rate or the hurdle rate.
Annuity Purchase Rate:
The cost of an annuity based on insurance company tables, which take into account various factors such as your age and gender.
Asset Allocation Programs:
Variable annuity asset allocation programs make recommendations as to which subaccounts to invest in, given a scontract owner's financial goals and the prevailing market conditions. Purchase payments are then allocated to the subaccounts in selected percentages. Portfolio rebalancing programs 'rebalance' the amount of money allocated to each subaccount as the target percentages move out of alignment over time because some subaccounts grow faster than others. Some asset allocation programs regularly review an investor's financial goals and market conditions and make correspnding changes in the subaccounts the owner invests in. Other programs may do so only when the owner experiences a major change in his or her financial situation.
Beneficiary:
The person typically designated under the contract to receive any payments that may be due upon the death of the owner or the annuitant.
Cash-Refund Annuity:
If the annuitant dies before the total of annuity payments received equals the premiums paid for the annuity, a lump sum equal to the difference between the premiums and the sum of the annuity payments already made is paid to the beneficiary.
Cash-Surrender Value:
The amount that can be withdrawn from the contract after deduction of any surrender charge. It is equal to the contract value minus any surrender charge. Also known as cas value.
Commutable Contract:
An annuity contract that allows you to terminate an annuitization agreement that is paying you income on a fixed period or fixed percentage basis.
Commutation:
A process provided under some term certain annuities that allows the annuitant to take some or all of the value of the undistributed annuity payments.
Contract Date:
Date contract becomes effective.
Contract Owner:
The person or couple who pays premiums under the contract and has the rights under the contract, such as making withdrawals, surrendering the contract, and changing the beneficiary or other terms of the contract.
Contract Value:
The combined total of your principal and portfolio earnings in a variable annuity, up to and including the date on which you annuitize. Also known as accumulated value.
Death Benefit:
Payment made to beneficiary upon death of contract owner and/or annuitant.
Deferred Annuity:
An annuity contract that you purchase either with a single premium or with periodic payments to help save for retirement. With a deferred annuity, you can choose the point at which you convert the accumulated principal and earnings in your contract to a stream of income.
Dollar-Cost Averaging:
Investing a fixed amount of money at set intervals with the goal of purchasing more units under a contractat low values and fewer units at high values. Variable annuity dollar-cost averaging programs involve allocating a purchase payment to one investment option, such as the money market fund or fixed option, and then having that payment periodically transferred out of that account to other subaccounts.
Enhanced Death Benefit:
A death benefit that goes beyond the guaranteed minimum death benefit by locking in investment gains every few years or every year, or paying a minimum stated interest rate on purchase payments.
Equity Indexed Annuity:
Annuity with payout based on a market index. Also known as an indexed annuity.
Expense Ratio:
The amount, as a percentage of your total annuity account value, that you pay annually for operating, management, and insurance expenses.
Fixed Account:
Part of the company's general account to which a variable annuity contract owner may allocate all or part of premium payments. Also known as fixed investment option.
Fixed Annuity:
An annuity contract that guarantees you will earn a stated rate of interest during the accumulation phase of a deferred annuity, and that when you annuitize, you will receive a fixed amount of income on a regular schedule.
Flexible Premium Contract:
A contract that allows payments to be made at any time after the initial purchase payment.
Free-look Period:
A certain number of days after receipt of the contract during which an annuity contract purchaser may revokde the purchase of the contract.
General Account:
All assets of the insurance company not allocated to seperate accounts.
Guaranteed Death Benefit:
The assurance that your beneficiaries will receive at least the amount you put into the annuity and typically your locked-in earnings if you die before beginning to take income. One of the insurance benefits that annuities provide.
Guaranteed Living Benefit:
Protection during the life of the owner or annuitant against investment risks under variable annuity contracts that guarantee the level of account values or annuity payments. There are two types-guaranteed minimum income benefits and guaranteed minimum account value benefits.
Guarantee Period:
Period during which the level of interest credited under a fixed annuity is guaranteed.
Guaranteed Minimum Account Value Benefit:
A benefit guarantee that promises that, at specified periods, the account value will not be less than the purchase payments, sometimes with a minimum rate of interest.
Guarantee Minimum Death Benefit:
A basic death benefit offered under virtually all variable annuity contracts. Payment is equal to the greater of (1) the contract value or (2) premium payments less prior withdrawals, and is made to the beneficiary upon the death of the owner and/or annuitant. Many variable annuity contracts now offer enhanced death benefits.
Guaranteed Minimum Income Benefit:
A benefit guarantee that ensures under certain conditions the owner may annuitize the contract based on the greater of (1) actual account value or (2) a 'payout base' equal to premiums credited with some interest rate or the maximum anniversary value of the account value prior to annuitization.
Immediate Annuity:
An annuity contract that you buy with a lump sum and begin to receive income from within a short period, always less than 13 months. An immediate annuity can be either fixed or variable.
Income Options:
The various methods of receiving annuity income that an annuity contract offers. You may choose from among them the one that suits your situation best. Typically, there are six or more choices, many guaranteeing income for life.
Installment-refund Annuity:
If the annuitant dies before the total of the annuity payents received equals the premiums paid for the annuity, the annuity payments will continue to the beneficiary until the total of the annuity payments equals the premiums.
Insurance Charges:
Cover administrative charges and the cost of the mortality and expense (M&E) risk.
Investment Management Fee:
The fee paid in connection with the professional management of the assets of the investment funds underlying variable annuities.
Issuer:
The insurance company that issues the annuity contract.
Investment Portfolio:
A collection of individual investments chosen by a professional manager to produce a clearly defined investment objective. Portfolios, which are structured the same way as open-end mutual funds, are offered in a variable annuity contract and are available to people who purchase the contract. They are also called subaccounts or investment accounts.
Joint And Survivor Annuity:
A life annuity in which there are two annuitants, known as joint annuitants. Annuity payments continue as long as either annuitant is alive.
Life Annuity:
Annuity payments distributed by the insurance com-pany for the life of the annuitant.
Life Annuity With Installments Certain:
If the annuitant dies before a certain number of payments have been made, the remaining num-ber of payments is made to the beneficiary.
Life Annuity With Period Certain:
A type of refund annuity in which if the annuitant dies before payments have been made for some minimum number of years, payments will continue until the end of the period and are received by the beneficiary.
Living Benefits:
Guarantees that provide principal protection by guaranteeing the level of account values or annuity payments.
Market Value Adjustment:
This feature, which is included in some annuity contracts, imposes an adjustment, or fee, if you surrender your fixed annuity or the fixed account of your variable annuity. The adjustment offsets any losses the insurance company might incur in liquidating assets to pay the amount due to you.
Mortality And Expense Risk Charge:
(M&E) A fee that pays for the insurance guarantees, including the death benefit; the guaranteed ability to choose a payout option that can provide an income that cannot be outlived at rates set in the contract at the time of pur-chase; and the guarantee that the insurance charges will not increase.
Non-Qualified Annuity:
An annuity contract you buy individually rather than as part of an employer-sponsored qualified retirement plan. You pay the premium with post-tax dollars. With a deferred nonqualified annuity, your principal grows tax-deferred.
No-Surrender Charge Annuity:
An annuity contract that does not have a surrender charge.
Partial Surrender:
A withdrawal of an amount less than the entire cash surrender value of the contract.
Payment Interval:
The period between annuity payments, whether a month, a calendar quarter, or a year.
Payout Phase or Payout Period:
The period during which the money accumulated in a deferred annuity contract, or the purchase payment for an immediate annuity, is paid out as income payments.
Portfolio Rebalancing:
A type of asset allocation program that periodically reallocates contract assets among fixed and variable investment options under a variable annuity contract in specified proportion.
Premiums:
The amount you pay to buy an annuity or any other insurance product. With a single premium annuity you pay just once, but with other types you pay an initial premium and then make additional premium payments.
Principal:
The amount of money you use to purchase an annuity, bond, mutual fund, stock or other investment. The principal is the base on which your earnings accumulate.
Proprietary Portfolios:
The investment portfolios offered within a variable annuity that are run by the insurance company’s investment managers. The annuity may also offer portfolios run by managers working for another financial institution, such as a mutual fund.
Purchase Rates:
The rate for converting the contract value to annuity income payments; rates are set in the contract.
Pure Life Annuity:
Annuity payments stop when the annuitant dies. Also known as a straight life annuity.
Qualified Annuity:
An annuity contract you buy with pre-tax dollars as part of an employer-sponsored qualified retirement plan.
Qualified Plan:
An annuity used in connection with a tax-deferred retirement plan such as a 401(k) plan.
Ratchet Guaranteed Minimum Death Benefit:
A type of death benefit that is equal to the greater of (a) the contract value, (b) pre-mium payments less prior withdrawals, or (c) the contract value on a specified prior date.
Rising Floor Guaranteed Minimum Death Benefit:
A type of death benefit that is equal to the greater of (a) contract value or (b) pre-mium payments less prior withdrawals increased annually at a spec-ified rate of interest.
Rollover:
An IRA or qualified retirement plan that you move from one trustee to another is known as a rollover. You can roll over any qualified plan, including a qualified annuity, into an IRA, preserving its tax-deferred status.
Separate Account:
The account established by the insurance company to hold the money you contribute to your variable annuity. It is separate from the company’s general account, where fixed annuity premiums are deposited. Money in the separate account is not available to the company’s creditors.
Single Premium Annuity:
This type of annuity contract is purchased with a one-time payment. All immediate annuities and some deferred nonqualified annuities are in this category.
Stepped-Up Death Benefit:
A death benefit that guarantees pay-ments with interest or that is increased regularly to protect invest-ment gains.
Subaccount:
The investment portfolios offered in variable annuity contracts are sometimes referred to as sub- accounts. The terms refers to their position as accounts held within the separate account of the insurance company offering the variable annuity.
Surrender Charge:
Cost to contract owner for withdrawals from the contract before the end of the surrender charge period. The surren-der charge period typically is five to seven years.
Systematic Withdrawal Plans:
Allows a variable annuity contract owner to have a check for a specified amount sent monthly or quar-terly as a partial withdrawal from the annuity contract value to the owner or another designated person prior to the annuity starting date. Many annuity contracts permit 10% or 15% of contract value to be withdrawn annually without a surrender charge. Unlike life-time annuity payments, systematic withdrawals can continue only as long as the contract cash value is not exhausted. But these programs can offer more flexibility than life annuity payments, since systemat-ic withdrawal payments can be reduced, increased, or stopped. The tax treatment of systematic withdrawals differs from that of annuity payments.
Term Certain Annuity:
Annuity with income payments over a fixed number of years.
Transfer:
The movement of assets from one subaccount to another. Transfer fee—Charge for a transfer of assets.
Underlying Investments:
The stocks, bonds, cash equivalents or other investments purchased by a variable annuity portfolio or mutual fund with the money you and other people allocate to that portfolio or fund.
Unit Value:
The dollar value of a single accumulation or annuity unit, which changes constantly to reflect the current combined total value of the underlying investments in your investment portfolios, minus expenses.
Variable Annuity:
An annuity contract that allows you to allocate your premium among a number of investment portfolios. Your contract value, which can fluctuate in the short term, reflects the performance of the underlying investments held in those portfolios, minus the contract expenses.
Withdrawal:
Distribution from an annuity other than scheduled annuity payments.
Withdrawal Fee:
An administrative fee charged on withdrawals.