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1035 Exchange is a method of swapping an existing life insurance or annuity policy for a new policy with a different firm that is tax-free.This process is frequently used when it is in the policyholder’s best interest to switch to a more advantageous contract with better rates or features than the one they presently have (1035 refers to the tax code number).
2-Year Treasury Note
A 2-Year Treasury Note is a US government-issued fixed-interest security with a two-year maturity period.
5-Year Constant Maturity Treasury Rate
5-Year Constant Maturity Treasury Rate is an index by the Federal Reserve Board computed based on the average yield of various Treasury securities, typically adjusted to five-year maturity.
A.M. Best Rating
A.M. Best Rating is an independent assessment of an insurer’s financial power and capacity to meet ongoing insurance policy and contract obligations,by the A.M Best Firm.
Account Value is the annuity’s gross value before any loans, premium taxes, Market Value Adjustments, or surrender charges.
Accumulate At Interest
Accumulate at interest is a dividend option typically offered on participating whole life insurance contracts, in which dividends are deposited with the insurer and earn additional interest.
Annual Step-Up is a popular feature on optional Guaranteed Lifetime Withdrawal Benefit riders. It raises the Benefit Base to the greater between the Benefit Base and the Account Value each year.
Interest rates computed as an annual rate are considered Annualized.
The Annuitant is the person or entity who receives an annuity’s benefits.
Annuitization bonus is a provision available on some Fixed, Variable, and Indexed Annuities that allows the insurance company issuing the annuity to credit the contract’s Account Value with a specified percentage of additional money if the contract is annuitized.
Annuitize is a term that describes converting an annuity contract from a cash accumulation option to a periodic distribution of funds.
An annuity is a contract in which a person agrees to pay premiums to an insurance company in exchange for a continuous stream of income payments from the issuer, either now or at a later date.
Annuity Linked TVI Index
The Annuity Linked TVI INDEX is a volatility control overlay-tied index linked to the Trader Vic Index. The Trader Vic Index seeks to capture rising and falling price trends by holding long and short positions on 24 futures markets across commodities, foreign exchange asset classes, and fixed income monthly.
Automatic Premium Loan (APL)
Automatic premium loan (APL) is a sort of Non-Forfeiture Option available on cash value life insurance plans that uses the policy’s cash value at the time of lapse to pay for the premium due. Despite an APL, loan interest will accrue.
Bailout provision is a clause in an annuity contract that allows the contract owner to surrender the contract without incurring a surrender charge if renewal interest rates or Caps fall below a pre-determined level.
Barclays Capital Aggregate Bond Index
The Barclays Capital Aggregate Bond Index, originally known as the “Lehman Aggregate Bond Index,” is a broad-based index maintained by Barclays Capital representing investment-grade bonds traded in the United States.
The base policy is the principal coverage that pays after the insured passes away.
When the contract owner or annuitant dies, the beneficiary is the person or legal entity who receives the annuity Death Benefit.
The benefit base value on an annuity’s optional Guaranteed Lifetime Withdrawal Benefit rider is the secondary “shadow fund” value on which the annuitant’s Guaranteed Withdrawal Payments are calculated. This value is distinct from the Account Value, and it can only be obtained by making Guaranteed Withdrawal Payments.
Benefit Base Bonus
Benefit base bonus is a feature that applies a premium bonus to the Benefit Base of the Guaranteed Lifetime Withdrawal Benefit rider. This bonus is not accessible in the event of a cash surrender; it just raises the “shadow fund” value, which is used to compute Guaranteed
A broker is “any person engaged in the business of effecting transactions in securities for the account of another,” as defined by the Securities Exchange Act of 1934. “Any person involved in the business of buying or selling securities for his own account” is referred to as a dealer. As a result, a broker/dealer trades for their account and other people’s accounts.
The cap rate is the maximum interest rate used in the crediting computation on an Indexed Annuity. A Participation Rate or a Spread Rate may also be used in indexed crediting mechanisms.
Cash is a payout option usually available on whole life insurance plans that allows the policy owner to receive dividends in cash (mostly in the form of a check).
Cash accumulation is a product objective utilized in pricing cash value life insurance plans when the primary goal is to accumulate cash values.
Cash Surrender Value
Cash surrender value is the amount an insurance policyholder is entitled to if they decide to stop paying the premiums.
Certificate Of Deposit(CD)
A certificate of deposit (CD) is a receipt given by a bank for a cash deposit at a predetermined interest rate for a specified time. The bank pays the depositor the principal plus all accrued interest when the account matures.
Long-term care benefits combined with another type of insurance, such as annuities or life insurance, are referred to as combo products.
Compound interest is an interest crediting whereby in addition to the interest, interest is credited on the principal payment.
Consumer Price Index (CPI)
The Consumer Price Index (CPI) is a time series measure of consumer goods and services prices in the United States.
Consumer Price Index – URBAN (CPI-U)
The Consumer Price Index-Urban (CPI-U) is the government’s approach for estimating the purchasing habits of roughly 80% of the non-institutional population in the United States.
The Contract Owner is the individual or business that applies for and obtains an annuity contract, and the individual or company is responsible for funding the annuity.
On an Indexed Annuity, the Crediting Method is a premium allocation option that specifies the method for crediting interest on the annuity contract.
The death benefit is the annuity benefits provided to the listed beneficiary/beneficiaries following the death of the Annuitant or Contract Owner.
A deferred annuity is an insurance contract in which at least a year passes between the payment of the lump amount or series of premiums and the transition of the annuity into a stream of income through annuitization. Fixed, variable, and Indexed deferred annuities can be structured this way.
Direct Recognition is a method of handling dividends on cash value insurance products in which any current loan balance reduces the amount of the payout credited to the policy.
Dividends are a non-guaranteed component of an insurance policy that is considered a return of premiums paid. A dividend on a life insurance contract is the policy owner’s share of the insurance company’s divisible surplus instead of dividends obtained through stock ownership.
Dow Jones Industrial Average (DJIA)
The Dow Jones Industrial Average (DJIA) is a stock indicator that tracks the market value of 30 prominent industrial companies daily.
Dow Jones World-EX. U.S. Index
The Dow Jones World-EX. U.S. Index is a stock index that covers 95 percent of European market capitalization at a regional level, 95 percent of all other developed markets at a country level, and 95 percent of emerging markets as a whole.
Due diligence is a research carried out by insurance salespeople and other financial consultants to ascertain an investment or product’s economic and legal viability.
Enhanced Death Benefit
The enhanced death benefit is a annuity contract feature that offers an annuity Death Benefit that is more than the contract’s entire Account Value.
Euro Stoxx 50
The EURO STOXX 50 is a market capitalization-weighted index of 50 blue-chip stocks from the European Monetary Union’s member countries.
In the case of payments from an immediate annuity or annuitization, a portion of each payment received by the Annuitant is considered a return of principal, which is not taxed. The remainder of the payments comprises the taxable interest earnings. The Exclusion Ratio determines each payment’s taxable and nontaxable portions.
An executor is a person named in a will to carry out the decedent’s wishes for asset distribution; the executor carries out their duties under court supervision.
Expenses are charges added to a Universal Life policy by an insurance company to cover the costs of administering the policy.
Extended No-Lapse Guarantee
Extended No-lapse Guarantee is a benefit that ensures that some life insurance policies will not lapse as long as a specified premium level is paid, regardless of interest rate performance.
Extended Term Insurance(ETI)
Extended Term Insurance (ETI) is a sort of Non-Forfeiture Option available on cash value life insurance products that leverages the policy’s cash value at the time of lapse to obtain term insurance with the same face amount for as long as possible.
Face Amount is the amount of life insurance that a policy owner purchases. The actual death benefit paid on a death claim could differ from the face amount due to death benefit options, policy riders, loans, interest on loans, and withdrawals.
Fifo To Lifo
The tax treatment of annuity payouts changed from first-in, first-out (“FIFO”), which meant your principal was distributed first, followed by interest, to last-in, first-out (“LIFO”), which means interest is distributed first.
A fee-based annuity is sold where the advisor is compensated via a flat fee instead of a sales commission percentage.
Final expense is a product objective used in pricing cash value life insurance plans whose primary focus is to provide insurance to cover final expenses such as funeral fees, burial occasions, etc.
Financial Industry Regulatory Authority (FINRA)
Financial Industry Regulatory Authority (FINRA) is a nonprofit self-regulatory organization of over-the-counter securities brokers and dealers regulated by the Securities and Exchange Commission (SEC).
Fixed Account Rate
Fixed account rate is the insurance company’s stated interest rate for an optional crediting method on a Fixed, variable, or Indexed Annuity. This method functions similarly to a Fixed Annuity.
A fixed annuity is an insurance contract that guarantees a minimum interest rate while crediting a stated rate of extra interest based on the insurer’s overall account performance.
Fixed Loan Interest
Fixed loan interest is a policy loan interest in which the interest rate does not fluctuate throughout the loan period and is a fixed amount that the insurance company declares.
Flexible Premium Deferred Annuity (FPDA)
A flexible premium deferred annuity (FPDA) is an annuity contract purchased with a premium payment that provides an individual with a regular stream of income payments from the issuer at a future date while retaining the opportunity to make additional payments into the contract until that date.
The floor is the annual minimum amount of interest credited to an annuity.
Forced Asset Allocation Model
A forced asset allocation model is when an insurance company forces a Variable or Indexed Annuity purchaser to distribute their premiums among the numerous crediting methods based on criteria set by the issuing insurance company.
Free Look Period
Free Look Period is an annuity contract feature that states that the contract owner has around 10 to 20 days after purchase to study the annuity contract and return it to the insurer for a full refund. The free look period differs depending on the State.
Free Withdrawal Provision
The free withdrawal Feature is an annuity contract provision that allows the annuity owner to take a portion of the annuity’s Account Value (usually 10%) within the accumulation period without paying a Surrender Charge.
The Financial Times-Stock Exchange 100 Share Index (FTSE 100) is a market-weighted index of the top 100 firms trading on the London Stock Exchange in the United Kingdom.
A General Account is a portfolio of investments used by an insurance company to invest premium income. Safe, conservative, and guaranteed investments, such as real estate and mortgages, make up the majority of this portfolio.
The London Gold Market Fixing Limited, which includes Scotia Mocatta, Barclays Capital, Deutsche Bank, HSBC Investment Banking Group, and Societe Generale,publishes the GOLD COMMODITY index, which offers gold rates to its members.
Guaranteed Lifetime Withdrawal Benefit (GLWB)
Guaranteed Lifetime Withdrawal Benefit (GLWB) is a rider or other feature incorporated in or that accompanies a Fixed or Indexed Annuity that guarantees annual withdrawals at a certain level (depending on the annuitant’s age), even if the contract’s Account Value falls to zero.
Guaranteed Minimum Accumulation Benefit(GMAB)
A Guaranteed Minimum Accumulation Benefit (GMAB) is a rider, feature, or endorsement incorporated in or accompanying a Fixed or Indexed Annuity that guarantees that the annuity’s Account Value will rise by a minimum defined percentage over a set period.
Guaranteed Minimum Death Benefit (GMDB)
The Guaranteed Minimum Death Benefit (GMDB) is a rider, feature, or endorsement incorporated in or accompanying a Fixed or Indexed Annuity that guarantees that the Death Benefit payable will not be less than a certain amount.
Guaranteed Minimum Income Benefit (GMIB)
Guaranteed Minimum Income Benefit (GMIB) is a rider, feature, or endorsement incorporated in or accompanying a Fixed or Indexed Annuity that guarantees a minimum annuitization amount regardless of the annuity’s performance.
Guaranteed Minimum Withdrawal Benefit (GMWB)
Guaranteed Minimum Withdrawal Benefit (GMWB) is a rider, feature, or endorsement incorporated in or that accompanies a Fixed or Indexed Annuity that guarantees annual withdrawals at a specified level (based on the annuitant’s age) until the policy’s premiums are returned, regardless of the annuity’s performance.
Guaranteed Withdrawal Payments
Guaranteed Withdrawal Payments are lifelong income payments that the Annuitant receives under any optional Guaranteed Lifetime Withdrawal Benefit rider on their Fixed or Indexed Annuity.
On a multi-year guaranteed annuity, the guarantee period is the number of years the interest rate is guaranteed.
Guranteed Death Benefit
Guaranteed Death Benefit is a product feature used in the pricing of cash value life insurance policies. The primary aim of the product is to provide a guaranteed death benefit for a specified length of time.
HANG-SENG is a market-weighted index comprising 33 equities that account for around 70% of the market value of all companies traded on the Hong Kong Stock Exchange.
A Hybrid Index combines at least one index and a secondary component, such as cash, mutual fund(s), or stock(s). They are usually volatility-controlled and proprietary.
Long-term care benefits that are paired with another type of insurance, such as life insurance or annuities, are referred to as Hybrid Products.
Illustrated Rate is a hypothetical rate used to demonstrate future policy values on an Indexed Universal Life, or Indexed Whole Life policy that the insurance carrier believes is a realistic expectation of future performance based on present Indexed Life rates. Illustrated rates are not guaranteed and are usually based on an index’s previous performance, which isn’t necessarily predictive of future policy performance.
Illustrated Rate LookBack Method
The Illustrated Rate Lookback Method is a strategy that Insurance providers employ to determine their Indexed Life illustrated rate (i.e., 20-Year Lookback). While most carriers look at the past performance of the index when determining the crediting method of their index, some carriers choose not to use a look back at all and simply select a rate that they believe is reasonable to them.
An Immediate Annuity is an insurance policy in which a lump-sum payment is converted into a stream of income within one year of purchase through annuitization.
INCREASING is a death benefit option (DBO) on a Universal Life policy that pays the Beneficiary the Face Amount of the policy plus the Account Value of the policy (minus any applicable loans, loan interest, and withdrawals). It’s also known as Option B or Option 2.
An index is a statistical composite that evaluates changes in the economy or financial markets, usually as a percentage change from a base period or the preceding month.
Indexed Annuity is a contract with a minimum guarantee offered by an insurance firm in which the crediting of any excess interest is based on the performance of an external index, such as the Standard & Poor’s 500® index. It’s s moderate risk/moderate return annuity product.
Indexed Universal Life
Indexed Universal Life Insurance is a type of unbundled, flexible life insurance that builds cash value and earns interest based on the performance of an external index, such as the S&P 500®. Indexed Universal Life insurance has guaranteed cash values and provides lifetime coverage on the insured as long as premiums are paid, or sufficient cash values are available.
Indexed Whole Life
Indexed Whole Life is a type of permanent interest-sensitive life insurance that builds cash value and earns interest based on the performance of an external index such as the S&P 500®. Indexed Whole Life insurance has guaranteed cash values and provides lifetime coverage on the insured as long as premiums are paid, or sufficient cash values are available.
Indices are the plural form of the word index.
Individual Retirement Account(IRA)
An Individual Retirement Account (IRA) is a tax-deferred savings plan that allows persons with earned income to put a part of their earnings into it.
An IRA can be started and funded at any time between January 1st of the current year and the deadline for filing an individual’s tax return (usually April 15 of the following year), excepting extensions.
Insolvency occurs when an insurance company’s assets are insufficient to cover policyholders’ claims filed against it.
Insurable Interest is defined as being in a position to lose money if the insured person dies. It is necessary to have an insurable interest to apply for life insurance on someone other than oneself.
The person whose life is covered against death under a life insurance policy is referred to as insured.
Interest Rate Bonus
Interest Rate Bonus is a feature available on Fixed and Multi-Year Guaranteed Annuities. The issuing insurance company offers a higher introductory credited interest rate in addition to the base annuity credited interest rate.
Interest-Sensitive Whole Life
Interest-sensitive Whole Life is a permanent life insurance policy that builds cash value as long as premiums are paid and earn a stated rate of interest rather than dividends. Whole Life insurance policies have guaranteed cash values and provide lifetime coverage on the insured as long as premiums are paid, or sufficient cash values are available.
Joint Annuitant is a person specified in the annuity contract with the annuitant, whose age and life expectancy are also factored into the calculations to determine the annuity payments.
A Joint Owner is a person who owns a portion of an annuity contract and has the same authority as the contract owner to approve contract decisions.
Lehman Brothers Aggregate Bond Index
The Lehman Brothers Aggregate Bond Index is a collection of Treasury bonds, notes, and government agency bonds issued by the United States government(excluding mortgage-backed securities).
LEVEL is the default death benefit option (DBO) on Universal Life insurance, with the amount of death benefit given to the Beneficiary equal to the policy’s Face Amount (minus any relevant loans, loan interest, and withdrawals). It’s also known as Option A or Option 1.
Limited Premium is a type of life insurance premium requiring premiums to be paid for only a specific amount of time, such as 10 or 20 years.
Linked Benefit Products
Long-term care benefits paired with another type of insurance, such as life insurance or annuities, are referred to as Linked Benefit Products.See also; Hybrid Products.
Loan Interest Reduction
Loan Interest Reduction is a dividend option that is frequently available on participating whole life insurance plans. The cash value of the payout is used to lower the amount of any outstanding policy loan interest.
Loan Reduction is a dividend option that is usually available on participating whole life insurance plans. The cash value of the payout is used to pay down any outstanding policy loans.
Long Term Care (LTC) Kicker
Long Term Care (LTC) Kicker is a provision on several optional Guaranteed Lifetime Withdrawal Benefit riders that enhances the Guaranteed Withdrawal Payment amount provided the annuitant meets the company’s long-term care benefit criteria. The Pension Protection Act does not provide preferential tax treatment to LTC Kickers.
Market Value Adujustment (MVA)
Market Value Adjustment (MVA) is a provision typically linked to deferred annuities if more than the penalty-free amount is taken or the contract is surrendered during the Surrender Charge period. It can increase or decrease the Cash Surrender Value of an annuity. If interest rates are lower at the time of withdrawal than when the contract was written, the Cash Surrender Value of the annuity will be higher (market value adjusted). The Cash Surrender Value will be lowered if interest rates are greater at the time of withdrawal than at the time of issue.
The Maturity Date is the deadline for converting an annuity into income payments (or annuitization).
Maximum Rollup Period
A Maximum Roll up Period is the period (years) that an optional Guaranteed Lifetime Withdrawal Benefit rider increase is applied to the annuity contract’s Benefit Base.
MEC stands for Modified Endowment Contract. The Internal Revenue Code was revised in 1988 to state that if a policy was over-funded (at the time of issue or later), it was a MEC. Any distribution indicating a gain from the policy would be taxed. The seven-pay test was created to limit the amount of premiums that can be paid for MEC testing over a seven-year period.
Minimum Guranteed Surrender Value (MGSV)
The Minimum Guaranteed Surrender Value (MGSV) is a secondary guarantee on a Fixed or Indexed Annuity that ensures the annuitant receives a minimum payout in the case of death, surrender, or index under performance (in Indexed Annuities). It’s worth noting that the NAIC has specified that MGSVs on annuities can’t credit less than 1% interest on 87.5 percent of the premiums paid. However, up to 3% interest of the premiums paid on the annuity can be paid based on a 5-Year Constant Maturity Treasury Rate and the annuity’s design. It’s worth noting that the richness of the annuity’s MGSV and the contract’s potential gains are inversely related.
Monthly Expense Charge (PER 1,000)
The Monthly Expense Fee (PER 1,000) is a charge levied on Universal Life policies for every $1,000 of coverage requested (thus the term “Per 1,000 charge”).It typically varies by age, sex, and issue class.
Mortality And Expense (M&E) Risks Charge
Mortality And Expense (M&E) Risks Charge is a fee that only applies to Variable Annuities. In most circumstances, the “M&E” pays for the guaranteed death benefit, ensures that the contract’s expense risks won’t rise, covers a guaranteed interest rate paid on one form of Variable Annuity subaccount, and can
cover the insurer’s annuity contract overhead expenses.
Mortality Costs, also known as Cost of Insurance charges or COIs, are charges on a Universal Life policy that cover the cost of life insurance coverage.
MSCI EAFE is the most widely used index in the United States for measuring international equities performance. It includes MSCI country indices from Europe, Australasia, and the Far East, representing developed markets outside North America.
MSCI Emerging Markets
MSCI Emerging Markets is a market capitalization index that tracks equity market performances in emerging markets worldwide.
Multi-Year Guaranteed Annuity (MYGA)
Multi-Year Guaranteed Annuity (MYGA) is a Fixed Annuity in which the credited interest rate is guaranteed for more than one year.
NASDAQ is an acronym for National Association of Securities Dealers Automated Quotation; the Over-the-Counter (OTC) market’s automated quotation system displays current bid-ask values for thousands of companies.
The NASDAQ-100 is a modified capitalization-weighted stock market index that includes 100 of the NASDAQ’s largest non-financial companies.
National Association Of Insurance Commissioners (NAIC)
The National Association of Insurance Commissioners (NAIC) is the standard-setting and regulatory organization in the U.S. It was created and is controlled by the chief insurance regulators of all 50 states, the District of Columbia, and five U.S territories.
National Association Of Securities Dealers (NASD)
The National Association of Securities Dealers (NASD) is a nonprofit self-regulatory association of over-the-counter securities brokers and dealers regulated by the Securities and Exchange Commission (SEC).
New Money is a mechanism that insurance firms use to price cash value life insurance and annuities that determine the credited rate depending on the rates available for premiums paid that day.
New Money Rates
New Money Rates is when an insurance company credits rates for premiums paid that day, based on the company’s current investments. It’s often more appealing and a better choice when rates are rising, less predictable, and prone to change.
The NIKKEI 225 is a Tokyo Stock Exchange stock market index.
No Lapse Gurantee
No Lapse Guarantee is a product objective used in pricing cash value life insurance policies with a major focus on providing a death benefit guaranteed to the insured’s age 100 or beyond.
Non-Direct Recognition is a method of dealing with dividends on cash value life insurance policies. Any outstanding loan balance does not harm the amount of the dividend credited to the policy.
Non-Forfeiture Options are options available to cash value life insurance policyholders that will provide at least a portion of their life insurance benefits if the policy lapses.
Non-Forfeiture Provision is a benefit that prevents a cash value policy from lapse owing to premium non-payment.
Non-Participating is a form of life insurance policy that does not receive dividend payments since it is not eligible to share in the insurer’s excess earnings.
A Non-Qualified Annuity has no contribution limit and no necessary minimum payouts at age 70½ (unlike qualified). It is open to any annuity buyer and can be funded with after-tax cash from any source.
Non-Rolling Surrender Charge
In a flexible premium delayed annuity, the stated duration of the surrender charge term will begin the day the initial premium deposit is received. Further deposits will not be changed at the moment at which all of the funds are penalty-free.
One-Year Term Insurance
One-Year Term Insurance is a dividend option that is usually available on participating whole life insurance contracts. The dividend’s cash value is used to purchase a single premium for one year of term life insurance, increasing the death benefit on the policy.
Options are calls (puts) that provide the holder the right to buy (sell) 100 shares of stock at a set price over a set period.
Paid-Up Additional Insurance (PUA)
Paid-Up Additional Insurance (PUA) is a dividend option usually available on whole life insurance products. The dividend’s cash value is used to purchase an additional whole life insurance contract without paying additional premiums on the extra coverage. This dividend option increases the amount of the death benefit paid on the policy and increases the amount of the death benefit paid on the policy.
Partial Surrender is an insurance policy on Universal Life contracts that allows the owner to withdraw a portion of the cash value. It will diminish the death benefit and cash value proportionately in some contracts.
A participating life insurance policy is a type of life insurance policy that receives dividend payments from the life insurance company due to being entitled to share in the insurer’s surplus earnings. Dividends are treated as a tax-free return of premiums paid.
Participating Fixed Rate Loan Interest
Insurance companies publish the participating fixed-rate loan interest, which does not fluctuate over the loan period. Many cash value life insurance policies use Participating Fixed Rate Loan Interest credit interest on the full value of the policy, including any monies loaned against.
The Participation Rate is the percentage of positive index movement considered in an Indexed Annuity’s crediting calculation. A-Cap Rate or a Spread Rate can also be used in indexed crediting techniques.
A Payor is a person or entity who pays the premiums on a life insurance policy.
Penalty-free withdrawals are the maximum annual amount that an annuitant can withdraw from the value of their annuity without incurring Surrender Charges. The Return-of-Premium (ROP) Option is a provision that gives the annuity purchaser a refund of the premiums paid at any time throughout the contract. This amount is usually expressed as a percentage of the annuity’s Account Value, usually 10%.
Per 1,000 Charges
Per 1,000 Charges are charges that an insurance company imposes on a Universal Life policy for a specified number of years to pay costs associated with managing the policy. These charges often vary by age, sex, and issue class.
Percent (%) Of Fund Charge
Percent (%) of Fund Charge is an expense charge on a Universal Life policy that an insurance company deducts from the Account Value of a life insurance policy to cover administrative costs.
Period Certain is an immediate annuity income option that allows the contract owner to receive periodic payments for a set period. The contract value and the duration of the period chosen influence the payout amount.
Pimco U.S. Advantage Index
The Pimco U.S Advantage Index is a broad-based bond market index that includes interest rate swaps,
investment-grade corporate bonds, inflation-protected securities, and instruments like mortgage-backed securities.
Policy Fee is an annual or monthly expenditure fee on a life insurance policy that an insurance company levies to cover the costs of running the policy.
A Policyowner is a person or entity who owns a life insurance policy and has the authority to amend it.
A portfolio is a mechanism used by insurance firms to price cash value life insurance and annuities. The credited rate is calculated using a weighted average of previous New Money rates.
Portfolio-Based Rates are when an insurance carrier credits rates based on their investment portfolio. They are usually more conservative and may create a better result for the consumer when interest rates are lower because of the broad portfolio with varying maturities.
Preferred Loans are a specific provision on cash value life insurance policies. The amount of interest credited to the policy after a certain number of years is equal to the interest charged on any existing policy loans.
Premature Withdrawal involves taking funds out of an annuity before the Contract Owner reaches 59½. In addition to any income taxes owed, you can be subject to a 10% federal tax penalty and a policy surrender charge from the insurance carrier.
Premium Bonus is a feature available on Fixed, Variable, and Indexed Annuities. The insurance company issuing the contract credits the contract’s Account Value with a specified percentage of additional money on the day the policy is issued (and often on subsequent policy anniversaries). It’s worth noting that annuities with Premium Bonuses have lower rates and higher/longer Surrender Charges than those without.
Premium Load is an expenditure charge imposed by an insurance company on a Universal Life policy each time a premium is paid to compensate for costs incurred to administer the policy. The most popular premium modes are yearly, semi-annual, quarterly, and monthly billings. Depending on the type of life insurance, less frequent premium modes can offer a decreased billing amount compared to more frequent premium modes.
Premium mode is the frequency with which a life insurance policy owner pays their premiums. Annual, semi-annual, quarterly, and monthly billings are the most typical premium modes. Depending on the type of life insurance policy, less frequent premium modes may offer a lower billing amount than more frequent premium modes.
Premium Reduction is a dividend option that is usually available on whole life insurance products, whereby the cash value of the dividend is used to lower the amount of the policy’s premium due.
Premium Tax is a tax imposed on insurance firms by various states on annuity premium payments.
Premium Type refers to the type of premiums that must be paid on a life insurance policy; alternatives include ‘Limited Premium’, ‘Flexible-Premium’, ,‘Single Premium’, and ‘Structured Premium’.
The principal is the whole amount invested in an annuity by the Contract Owner, excluding any interest earned.
According to federal laws, a Prospectus is a written document that must be presented to any prospective Variable Annuity purchaser before the sale. It explains the investing goals of any separate accounts, the success of subaccounts in the past, and any fees or charges.
Qualified Annuity is a type of annuity that can fund or distribute money from a tax-qualified plan. Premiums paid can usually cut current income taxes while the accumulations are tax-deferred.
Rainbow Crediting Method
The Rainbow Crediting Method is an indexed crediting method that looks back over the crediting period and then credits a percentage depending on the performance of the better-performing indexes. For example, an insurance carrier can offer indices A, B, and C on an annual point-to-point multiple index crediting system. In the crediting formula, the best-performing index receives a 75 percent weighting, the next-best performing index receives a 25 percent weighting, and the least-best performing index receives no credit. At the end of the term, the insurance company applies a Participation Rate, Cap, or Spread to any potential indexed profits.
Recapture Charge is a feature found on Fixed, Variable, and Indexed Annuities with Premium Bonuses that allows a portion of the Premium Bonus to be lost if a withdrawal exceeds the penalty-free amount within a specific time frame.
Reduced Paid-Up (RPU) Insurance
RPU Insurance is a sort of Non-Forfeiture Option available on cash value life insurance plans that leverages the policy’s cash value at the time of lapse to purchase as much paid-up insurance as possible.
Registered Indexed Annuity
Registered Indexed Annuity is an Indexed Annuity filed with the Securities and Exchange Commission and classed as a security.
Renewal Rates are the credited interest rates (or capping rates, participation rates, or spread rates on an indexed insurance product) that are applied to a life insurance or annuity policy after it is in force. Renewal Rates might be greater or lower than the rates in effect when the policy was sold.
Required Minimum Distribution (RMD)
RMD stands for Required Minimum Distribution. Both IRAs and qualifying plans have “required” distributions. You must begin withdrawing cash from your IRA by April 1st of the year following the calendar year you turn 70 1/2. Withdrawals from eligible plans must begin by April 1st of the year following the latter of (a) reaching age 70½ or (b) retiring.
Return-Of-Premium (ROP) Option
The Return-of-Premium (ROP) Option is an annuity option that gives the annuity purchaser a refund of the premiums paid at any time throughout the contract.
Rider (A.K.A. Endorsement)
A Rider is an optional benefit that can be added to the base annuity contract that affects the terms and circumstances of the annuity. It’s an endorsement of a life insurance policy that either limits or adds extra benefits to the policy and becomes a part of the insurance contract.
A Risk-Averse Client or Investor will not take on a certain amount of risk unless they believe they will be adequately compensated for it.
Rolling Surrender Charge
Each deposit will have its own independent Surrender Charge in a flexible premium deferred annuity with a Rolling Surrender Charge schedule. (In the case of a 5-year Surrender Charge, the 5-year period begins the day the corporation receives the money.) As a result, at different times, different portions of the annuity contract will be ‘Surrender Charge-free.’
Rolling Target Premiums
Rolling Target Premiums is a typical feature on all types of Universal Life insurance if the policy owner’s premium is less than the target premium. The salesperson gets paid full commissions until the target premium is met.
Rollover is the transfer of money from one IRA or a qualified retirement plan to another of the same type or an IRA, keeping the tax-deferred status of the original.
Rollup is a typical feature on optional Guaranteed Lifetime Withdrawal Benefit riders that promises that the GLWB’s Benefit Base will grow by a certain percentage of the annuity contract is held in deferral, and Guaranteed Withdrawal Payments are not taken. This percentage is not a bonus or a guaranteed annual return on the underlying annuity contract. It can only be obtained if the Annuitant defers the insurance. In most cases, the Rollup is limited to a specific number of years.
The Rollup Period is the number of years the Rollup on an optional Guaranteed Lifetime Withdrawal Benefit rider is credited to the Benefit Base for the first time.
Rollup Period Reset
Rollup Period Reset is a feature included on many optional Guaranteed Lifetime Withdrawal Benefit riders that allows the purchaser to re-start the Rollup Period, allowing the Annuitant to benefit from any Rollup for a more extended period. Typically, these resets can only happen once every five years or so, depending on the contract.
Rule Of 72
The Rule Of 72 is a simple way to estimate how long an investment will take to double at a given compound interest rate. Typically it’s obtained by dividing the interest rate by 72.
Russell 2000 Index
The Russell 2000 Index is an American stock market index that measures the performance of small-cap stocks. The Russell 2000 is a subset of the Russell 3000® Index, accounting for around 10% of the index’s total market capitalization. It covers about 2000 of the tiniest securities depending on their market capitalization and current index participation.
The Savings Bond is a non-transferable United States government bond in denominations ranging from $50 to $10,000. They’re sold at a discount, and their effective interest rate is tied to Treasury bonds. State and local income taxes are not applied to savings bond earnings, and federal income tax is postponed until the bonds are redeemed.
Second-To-Die Insurance, also known as survivorship life insurance, is a type of life insurance that does not pay out until the second insured person on the policy passes away. The death payments from these policies are frequently intended to be used to pay back taxes.
Securities and Exchange Commission (SEC)
The Securities And Exchange Commission (SEC) is a federal organization that regulates and enforces public investment trading operations.
A Separate Account is the investment portfolio of an insurance provider that supports Variable Annuities, Variable Universal Life, and Variable Life. It is held separate from the company’s ordinary investment accounts.
Simple Interest is a type of interest crediting in which interest is only credited on the principal payment and not on the accrued interest.
Single Premium Deferred Annuity (SPDA)
A Single Premium Deferred Annuity (SPDA) is an annuity contract purchased with a single premium payment that provides an individual with a continuous stream of income payments from the issuer at some point in the future in exchange for a single premium payment.
Solvency refers to an insurance company’s ability to pay claims brought against it by policyholders.
S&P 500 Composite Index (S&P 500)
The S&P 500 Composite Index (S&P 500) is a market value index of stock market activity that includes 500 of the most popular stocks.
S&P 500 Daily Risk Control 10% Total Return
The S&P 500 Daily Risk Control 10% Total Return index is an index that uses existing S&P 500 methodology and overlays mathematical methods to control index risk profiles at defined volatility objectives. The indices constantly re balance exposure to sustain volatility targets of 5%, 10%, 12 percent, or 15%.
S&P 500 Daily Risk Control 5% Total Return
The S&P 500 Daily Risk Regulate 5% Total Return is an index that uses conventional S&P 500 methodology and mathematical overlay methods to control index risk profiles at preset volatility objectives. The index constantly re balances exposure to sustain volatility targets of 5%, 10%, 12%, or 15%.
S&P 500 Global Broad Market Index (BMI)
The S&P 500 Global Broad Market Index (BMI) is a comprehensive, rules-based index that measures global stock market performance. It is made up of the S&P Developed BMI and S&P Emerging BMI. Since 1989, the S&P Global BMI has been the first global index suite with a fully float-adjusted, transparent, modular structure.
The S&P GSCI, formerly known as the “Goldman Sachs Commodity Index”, is a benchmark for commodity investment and a measure of commodity performance across time.
S&P Midcap 400 Index
The S&P MIDCAP 400 Index is a benchmark for mid-sized firms that investors can use. The index strives to remain an accurate measure of mid-sized companies, reflecting the risk and return characteristics of the larger mid-cap universe on an ongoing basis. It encompasses roughly 7% of the US equity market.
A specimen Contract is a general sample annuity contract.
Spousal Continuation is a standard feature on optional Guaranteed Lifetime Withdrawal Benefit riders that permits the Annuitant’s spouse to continue the Guaranteed Withdrawal Payments after the Annuitant has died.
Spread Rate (a.k.a. Asset Fee, Margin)
In the crediting computation on an Indexed Annuity, the Spread Rate (a.k.a. Asset Fee, Margin) is a deduction made from the positive index growth at the end of the index term. A-Cap Rate or a Participation Rate can also be used in indexed crediting mechanisms.
Stacking Rollup is a feature on optional Guaranteed Lifetime Withdrawal Benefit riders that assures that the GLWB’s Benefit Base will rise by a certain percentage of the annuity contract, provided it’s held in deferral, and Guaranteed Withdrawal Payments aren’t taken. Due to the additional feature of delivering an additional component for the development of the Benefit Base, which is based on the fixed and/or indexed gains on the base policy, the set percentage amount on a Stacking Rollup is significantly less than on a standard Rollup. This percentage is not a bonus or a guaranteed annual return on the underlying annuity contract. It can only be obtained if the Annuitant defers the insurance.
Standard And Poor’s Rating (S&P Rating)
Standard And Poor’s Rating (S&P RATING) is a third-party assessment of an insurer’s financial strength and capacity to meet its ongoing insurance policy and contract obligations, as reported by Standard and Poor’s.
Standard Policy Form State Approval
Standard Policy Form State Approval occurs when a state insurance division approves the precise version of the annuity policy form that the insurance company files to be sold in that state. The majority usually approves the Standard Policy Form of states across the country.
State Guaranty Funds
State Guaranty Funds are funds established by 50 states to protect contract holders if an insurance company goes bankrupt. Most state guaranty funds levy an additional fee on their admitted insurers to cover any insolvencies within the state. Different states have different protection limits. Insurance companies pay for all guaranty associations, which are then controlled by the states.
A Structured Premium is a type of life insurance premium that requires a set amount of money to be paid on a set schedule.
A sub-account is the investment portfolio offered in Variable Annuity contracts where premiums can be allocated.
A Suitability Review is a procedure used by an insurance salesperson to determine the right level of risk to assume when purchasing an annuity and whether a particular annuity product is suitable for purchase.
Surrender Charge is a penalty levied by the insurance company for prematurely withdrawing funds from an annuity. It usually applies during the first 7-10 years of the contract.
Surrender Charge Waiver
Surrender Charge Waiver is a product feature available on Fixed, indexed, and Variable Annuities and allows annuitants to remove a portion of the value of the annuity without triggering surrender fees provided certain conditions are met. Death, disability, nursing home confinement, terminal illness, and unemployment are common reasons for a remission of Surrender Charges.
Sweep is the frequency with which an indexed life insurance carrier permits the account value of an indexed life policy to be allocated to an indexed strategy to construct an indexed bucket. It can range from daily to annually, depending on the firm.
Target Premium is one of two components of the commission paid to salespeople on all types of Universal Life insurance. The amount of premium paid on a Universal Life policy is fully commissionable to the salesperson.
Tax-Deferral occurs when taxes on earnings are postponed until the annuity’s earnings are withdrawn.
Tax-Sheltered Annuity (TSA)
TSA (Tax-Sheltered Annuity) is a retirement annuity sold only to public school teachers and employees of colleges, hospitals, and other organizations that offer eligible retirement plans under section 403(b) of the United States Internal Revenue Code.
The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) was the first law to mandate a gap between a policy’s face amount and its cash value in the definition of life insurance contracts.
Term Life Insurance
Term Life Insurance is a type of temporary life insurance that does not accumulate cash value and has premiums that grow after each term renews (if it is renewable).It pays a payout only if the insured dies while the policy is in existence.
A two-Tiered Annuity contains an interest rate component credited to the annuity during the accumulation period that is competitive with comparable non-two-tiered plans, and benefits are conditional on annuitization. If the owner does not maintain the policy, they will be charged a Surrender Charge. They will be retroactively credited with lower interest rates dating back to the beginning of the contract. In this case, the contract owner would receive one tier of interest rates by staying with the contract through annuitization and another, the lower tier of rates if they do not). On Two-Tiered Annuities, it’s a good idea to compare the annuitization rates with the rates during the accumulation phase.
U.S. 10-Year Swap Rate
The US 10-Year Swap Rate is a daily benchmark provided by the Federal Reserve of the United States that indicates the borrowing rate between the most credit-worthy financial institutions and major enterprises in the United States.
U.S. 10-Year Treasury Bond
The US 10-YEAR TREASURY BOND is a ten-year marketable fixed-interest government debt security issued by the United States.
When applying for life insurance, UNDERWRITING is the process of determining how much danger someone or anything poses to an entire group.
Universal Life insurance is a permanent, unbundled, flexible life insurance that creates cash value and earns interest rather than dividends. Universal Life has guaranteed cash values and offers lifetime coverage on the insured as long as premiums are paid, or adequate cash values are available.
A Variable Annuity is a contract provided by an insurance firm in which the crediting of any interest is governed by the performance of the annuity owner’s underlying investment decisions. A variable annuity is a high-risk, high-reward annuity product.
Variable Life is a permanent Whole Life plan with cash values and death benefits that fluctuate depending on the performance of stocks, mutual funds, bonds,and other investments. It provides lifelong coverage to the insured as long as premiums are paid or cash values are sufficient. Variable Life is only offered by a few insurance companies today, and it must be marketed through a prospectus, just as Variable Universal Life.
Variable Loan Interest (VLI)
Variable Loan Interest (VLI) is a type of policy loan that fluctuates based on external indices. Many cash value life insurance policies use VLI credit interest on the full value of the policy, including any loaned-against monies.
Variable Universal Life
Variable Universal Life insurance is a type of unbundled, permanent life insurance policy that accumulates cash value and earns interest based on the success of stocks, index funds, bonds, and other investments. Variable Universal Life has no guaranteed cash values, but it does provide lifetime coverage on the insured if performance warrants it.
Variation State Approval
Vesting Schedule is a feature found on Fixed, Variable, and Indexed Annuities with Premium Bonuses that displays a timeline for when the annuitant acquires ownership (or non-forfeitable rights) in the annuity contract’s Premium Bonus.
A Variation State Approval is when a state insurance division allows a modified form of the Standard Annuity Policy Form to be sold within their state.
Wealth Transfer is a product objective utilized in pricing cash value life insurance policies and annuities whose principal purpose is to provide a vehicle for transferring assets to beneficiaries upon death.
Weighting Multiple Index Crediting Method
Weighting Multiple Index Crediting Technique is an indexed crediting method. Two or more indices offered on the crediting method receive a stated percentage weighting over the crediting term. Depending on each index’s weightings and performance, potential indexed gains will be credited at the end of the period. An insurance business, for example, can offer indices A, B, and C as part of a monthly average multiple index crediting system. Over three years, Index A will be given a 40% weighted; Index B will be given a 35% weighting, and Index C will be given a 25% weighting. At the end of the term, the carrier applies a Participation Rate, Cap, or Spread to any potential indexed profits.
Whole Life Insurance is a type of inflexible life insurance that builds cash value as long as premiums are paid and can produce dividends. Whole Life has guaranteed cash values and offers lifelong coverage on the insured as long as premiums are paid, or adequate cash values exist.