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FAQ | General Overview
What is an Annuity?
Historically, the term annuity has meant a series of periodic payments. Today, when a person buys an annuity, he or she enters into an annuity contract with an insurance company. An annuity contract has both investment and insurance features. These features are described in this discussion.

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What Are the Different Types of Annuities?
Annuities are flexible financial instruments and come in different shapes and sizes to meet the specific needs of buyers.

Deferred Annuities: A Way to Save Money for Retirement
Many people buy annuities because they want their money to grow, knowing they can set up an income stream later when they retire. In this situation, people purchase a deferred annuity. A deferred annuity contract has two phases—an accumulation phase and a payout phase.

In the accumulation phase, the owner pays premiums (also referred to as purchase payments) into the contract and accumulates assets. Some contracts are purchased with a single payment, and thus are called single premium contracts. With other contracts, payments can be made at any time—these contracts are called flexible premium contracts.

In the payout phase, the owner receives income. When an owner wants income payments to begin, he or she tells the insurance company to start sending checks. The effective date of payments is called the annuity starting date, the annuity commencement date, or the maturity date. The annuity starting date can be one year or many years after a deferred annuity is purchased.

Immediate Annuities: When You Want to Receive Money Right Away
An immediate annuity is purchased with a single premium, and annuity payments begin right away or soon after purchase. (There is no accumulation period.) If the owner chooses to receive monthly payments, they start at the end of the first month. If annual payments are selected, payments start at the end of the first year. An immediate annuity can be used by a person who is retired and wants to use his or her retirement savings, say from a 401(k) plan and/or private savings, to purchase an annuity that immediately provides income payments.

Fixed Annuities: Guaranteed Investment Performance
With a fixed annuity, the owner is guaranteed a specific rate of return. In the case of a deferred fixed annuity, the insurance company guarantees a set interest rate on payments made by the owner during the accumulation phase. Very often an insurer will credit interest at a higher rate for varying periods. This type of interest is often referred to as “excess interest.” Payments made by the owner are invested in the insurance company’s general account. During the payout phase, the dollar amount of each annuity income payment is guaranteed.

Generally, fixed annuities are less risky than variable annuities because they offer a guaranteed minimum rate of interest. The interest rate is not affected by fluctuations in the stock market or the company’s yearly profits. A disadvantage of fixed annuities is they offer less investment flexibility and not as much opportunity for growth as variable annuities.

Equity Indexed Annuities: Market-Based Investment Performance with Guaranteed Minimum Rate of Interest
An equity indexed annuity is designed for investors who wish to enjoy some of the benefits of investing in the stock market with a protected investment floor if there is a downturn in the market. This annuity typically provides the contract owner with an investment return that is a prescribed percentage of the return of an index, such as the S&P 500, while guaranteeing no less than a stated fixed return on the investment.

Variable Annuities: Investment Performance Based on Investment Portfolios Chosen by the Owner
With a variable annuity, the contract owner has investment flexibility. The owner chooses from a wide range of investment options, enabling the person to allocate some assets to investment portfolios that can help keep up with inflation and some in more conservative choices or in a fixed rate fund. The investment portfolios are similar to (but not the same as) mutual funds that are sold directly to the public in that they invest in stocks, bonds, and money market investments. Payments are invested and earnings are reinvested in these underlying portfolios.

The investment return of a variable annuity fluctuates. That is, during the accumulation phase of a deferred variable annuity, the value of the contract varies based on the performance of the underlying investment funds. During the payout phase of a deferred variable annuity (and throughout the entire life of an immediate variable annuity), variable annuity payments may change based on the performance of the underlying investment funds.

In addition to variable investment funds, many variable annuities offer a fixed account or fixed investment option. This means that during the accumulation phase of a deferred variable annuity, the owner can allocate payments not only to one or more variable investment options, but to the fixed option as well. The money allocated to the fixed option goes into the insurance company’s general account. A minimum rate of interest is guaranteed, usually with a higher rate (also known as the “current rate”) declared periodically by the company. The rate never drops below the minimum guaranteed rate.

During the payout phase of some variable annuities, only fixed annuity income payments are offered. Other variable annuities provide fixed and/or variable payouts. Providing both types of payouts responds to the fact that a contract owner may be willing to take on the added risk associated with variable investment funds while accumulating assets, but may want to reduce risk during retirement by choosing to have the rate of return of at least some portion of income payments guaranteed.

Qualified Plans vs. Non-Qualified Plans
Annuities can be used in tax-qualified retirement plans (so-called qualified plans), such as pension or profit sharing plans, 401(k) plans, 403(b) plans (for certain charitable and educational institutions), and certain governmental plans. These annuities are called qualified annuities. Annuities that are purchased by the public and not used in a qualified plan are called non-qualified annuities. An annuity used in a qualified plan provides contract owners with most of the benefits offered by non-qualified annuities. They do not, however, provide any additional tax-deferred treatment of earnings - tax deferral is provided by the qualified plan itself.

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What are the Insurance Guarantees in an Annuity?
The insurance company provides guarantees that are set out in the contract. The guarantees that the insurance company makes are:
  • Annuities may offer a death benefit guaranteeing that if the contract owner or annuitant dies before annuity income payments begin, the beneficiary will receive a death benefit. The amount of the death benefit payable under a fixed annuity contract is usually the accumulated value of the contract, in come cases reduced by any applicable surrender charges. The amount of the death benefit payable under a variable annuity is at least as much as was invested, even if the value of the investments has declined. Many variable annuity contracts now provide enhanced death benefits that guarantee the amount of money paid into the contract compounded with interest or “stepped-up” regularly to protect investment gains.

  • Many variable annuities offer various forms of guaranteed minimum living benefits that provide principal protection. For example, some contracts guarantee that the contract value will be at least equal to the initial investment after a specified period of time, such as 10 years, regardless of market performance. Others guarantee the systematic withdrawal of a certain percentage of premiums annually, such as 7 percent, until the original investment has been completely recovered, again regardless of market performance. Another form of living benefit entitles contract owners to annuitize their contracts after a specified period based on the greater of the actual value of the annuity or a payout base which typically is equal to the amount invested credited with a competitive rate of interest.

  • Annuities can guarantee income payments that will continue for life, no matter how long that is. And the rates for converting the value of the contract to annuity income payments down the road—so-called purchase rates—are set in the contract at the time of purchase and stay the same for the life of the contract, regardless of changes in the economy, longevity, or the insurance company’s costs of doing business.

  • Annuities guarantee that the insurance charges set forth in the contract, which cover administrative charges and the cost of the mortality and expense (M&E) risk, will never increase above a set maximum amount even if the actual costs to the insurance company increase.

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What are the Fees and Expenses Associated With Variable Annuities?
There are two types of asset-based expenses associated with a variable annuity—an investment management fee for the underlying investment portfolios and annual insurance charges. The investment management fee typically ranges from .5% to 1.0% per year, depending on the type of investment portfolio chosen. The amount of the annual insurance charges varies. Insurance charges generally include (1) administrative charges, (2) mortality and expense risk fees (M&E fees), and (3) optional insurance charges.

The administrative charges pay for all of the services involved in the maintenance of variable annuity contracts, such as preparation of contract statements and mailings and other customer services. Administrative charges are typically in the range of .15% per year. Some variable annuities also impose an annual contract fee, which is similar to the annual account maintenance fee imposed by many IRAs. This fee generally ranges between $30 and $40 per year. Some insurers waive this fee for contracts with a larger contract value. Some contracts impose a fee (known as a transfer fee) for an excess number of transfers among portfolios.

In most contracts, the M&E fee pays for three important insurance guarantees:
  • The guaranteed death benefit to protect beneficiaries from a market downturn.
  • The guaranteed ability to choose a payout option that provides an income that cannot be outlived at rates set in the contract at the time of purchase.
  • The guarantee that the annual insurance charges will not increase above a specified guaranteed amount.

Some variable annuity issuers have "unbundled" their contracts. Unbundled contracts offer purchasers a menu of benefits they can add to their contracts. For example, many contracts offer optional enhanced death benefits as well as guaranteed minimum income benefits that guarantee a certain minimum level of income if the contract owner elects to receive annuity payments. Unbundled contracts permit purchasers to choose and pay for only the benefits they want.

Most variable annuities are offered with no initial sales charge, but cancellation of the contract during its early years may trigger an early withdrawal charge, known as a surrender charge. These charges typically range from 0% to 7% in the first year, and subsequently decline to zero generally after five to seven years (known as the "surrender charge period"). Many annuity contracts impose surrender charges only during the initial surrender charge period that begins after the contract is purchased, while others begin a new surrender charge period for each premium.

Surrender charges underscore the long-term nature of the product. As long as the person remains committed to accumulating money for his or her retirement through the variable annuity, he or she need not incur these charges.

A few states impose a premium tax on variable annuity purchases. These may be payable by the purchaser and reduce the contract value. These taxes range from 0% to 4%, depending on the state of residence, but, in most cases, do not exceed 2%.

New Types of Charge Structures
Variable annuity issuers have begun to offer new types of charge structures to meet varying investor needs.

"Unbundled" Charges
As previously discussed, some variable annuity contracts permit purchasers to select from a menu of optional product features. Each optional feature has a charge associated with it. The advantage of this "unbundling" approach is that it gives the customer the ability to select and pay for only those features he or she wants.

Optional features that can be added to contracts include enhanced guaranteed death benefits, guaranteed minimum income benefits, shorter surrender charge periods, and "extra value" riders that provide a credit to purchase payments.

"A-Share" Variable Annuities
"A-share" variable annuity contracts were introduced in 1999. Like "A-share" mutual funds, these contracts have up-front sales charges instead of surrender charges. Sales charges are calculated as a percentage of each purchase payment.

"A-share" variable annuities offer breakpoint pricing, which means up-front sales charges decrease depending on the cumulative amount of purchase payments that have been made. In addition, assets a contract owner has in other products in the company's line may apply to the cumulative amount used to determine the breakpoint pricing. Some contracts permit owners to go to the next breakpoint if the owner pledges to increase an annuity's assets each year.

"C-share" or No-Surrender Charge Annuity
The no-surrender charge annuity offers full liquidity at any time, without any up-front or contingent sales charge (although tax penalties may apply to withdrawals before age 59½).

"L-share" variable annuities typically have shorter surrender charge periods, such as three or four years, but may have higher ongoing M&E and administrative charges.

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Who Are the Parties to an Annuity Contract?
The insurance company is the issuer of the annuity contract. When the purchaser completes the application to buy an annuity, the contract owner, annuitant, and beneficiary are designated and identified as such in the contract.

Contract Owner
The owner of an annuity contract pays the premiums. The contract owner has certain rights under the contract, such as the right to add more money, withdraw part or all of the contract value, or change the parties to the contract. The owner is usually an individual or couple, but can also be a trust or a partnership. Special rules apply to annuities owned by non-natural persons. (These rules are not discussed in this book.)

Annuitant
The annuitant is the person upon whose life annuity payments are based. Often the contract owner is also the annuitant so payments continue as long as the owner is alive. It is also possible for an owner and spouse to be designated as joint annuitants so that income can continue throughout both of their lives. This type of annuity is called a joint and survivor annuity.

Beneficiary
The beneficiary is the person designated under the contract to receive any payments that may be due upon the death of the owner or annuitant.

Respective Roles of the Parties
Annuity contracts offer a great deal of flexibility in setting up income payments. Therefore, contracts vary as to the respective roles of the owner, annuitant, and beneficiary. Under one contract, the owner may be entitled to receive annuity payments. Under another, the annuitant may receive annuity payments.

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How Do You Buy an Annuity?
When a person buys an annuity contract, that person enters into a contractual relationship with the insurance company, which is the issuer of the contract. There are over 200 insurance companies in the U.S. that issue annuities. Annuities are marketed and sold, however, through different types of financial institutions such as insurance agencies, brokerage firms, banks, savings and loan institutions, credit unions, financial planners, and investment advisors. Most recently, annuities have begun to be sold “directly”; e.g., purchasers calling an 800 number advertised in newspapers and other periodicals or accessing a web site.

There are many sources of information on annuities, including books available at bookstores, articles in magazines and newspapers, and specialized publications available in libraries. There are several World Wide Web sites on the Internet with information on annuities.

There are several things a person must consider when purchasing an annuity:
  • Check the rating services to make sure the company is financially sound.
  • Consider the interest rate the annuity currently pays as well as the interest rates the annuity has historically paid or, in the case of a variable annuity, how many investment options it has and how the investment options have performed in the past.
  • Review the different guarantees or insurance benefits the contract offers.
  • Understand the fees and charges associated with an annuity contract.

What happens when a purchaser has decided on a specific annuity contract? The purchaser fills out an application with or without assistance from the person who is selling the annuity. Then, the application is sent to the insurance company for review. When the application is in good order, the company issues the annuity contract, and the purchaser receives the contract directly from either the company or the agent.

Under state law, annuity contract purchasers generally have the right to revoke the purchase of the contract within a certain number of days after receipt of the contract. This free-look period may vary from 10 to 30 days, depending on the laws of the state where the contract is sold. If the contract owner exercises this right of revocation, generally the insurer must refund the purchase price. However, in the case of variable annuities, some states allow the company to refund the accumulation value or contract values—the sum of premiums, earnings, or losses, minus contract charges and any withdrawals—rather than the purchase price.

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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.