Providing for honest things, not only in the sight of the Lord, but also in the sight of men.

To help you understand annuities, we have provided below a general explanation of some frequently used terms. Note that the exact definitions of these terms can vary from company to company, from state to state, and from policy form to policy form, even between forms of the same company. Always consult the actual policy for the meaning of the terms applicable to your situation.

The period of time between when the annuity is issued and when the insurance company begins to pay proceeds back to the annuitant. Interest earned on the accumulated payments during this time is added to the account tax-deferred under current tax laws.

The person to whom the future annuity income benefits will be directed.

A contract between an individual (the owner who is also usually the annuitant) and an insurance company. The owner agrees to pay the insurance company a single payment or a series of payments, and the insurance company agrees to pay the annuitant a fixed amount on a regular basis, starting immediately or at a later date.

An agreement by the insurance company allowing the owner to withdraw funds without a withdrawal charge. If the interest rate decreases below a certain level, the owner has the option to "bail-out". This will usually be subject at least in part to income tax and a 10% IRS penalty.

Extra interest credited in the first year that increases the annuity's value on which future interest will be calculated in subsequent years. Also known as 1st Year Bonus Rate.

The rate of interest in excess of the guaranteed minimum rate, periodically set by the insurance company and based on the market rates.

A contract with distribution payments being made to the annuitant beginning at a future date. The amount which the annuitant receives is based on the accumulation of the premiums paid plus interest earned until the annuity is annuitized.

The period of time, either a specified number of years or lifetime, over which distribution payments are made to the annuitant. Interest earnings during the accumulation and distribution periods become taxable when the annuitant begins to receive payments. The payout during the distribution period can either be fixed or variable.

A statistical measure used to report the performance of a select group of stocks or bonds. When the index to which an annuity is tied appreciates in value, so generally does the cash value in an equity indexed annuity.

A contract in which the insurer establishes a specific rate of return, declared in advance (i.e. fixed), and credited to the annuity funds. There is a guaranteed minimum accumulation rate and the insurer assumes the investment risk.

The payout is established at the time of annuitization and does not change except for pre-defined reasons- i.e., a joint and 50% survivor annuity would decrease distribution payments 50% to the surviving annuitant upon the death of one annuitant.

A client makes periodic premium payments over the deferred period of the annuity contract. Premium payments, accumulated with interest, are used to determine the future distribution payments to the annuitant.

The time between purchase and payout period of a deferred annuity where annuity earns interest.

Annuities provide a lifetime guaranteed minimum interest rate for the life of the annuity. In addition to this lifetime guaranteed minimum rate, companies often guarantee that their initial declared interest rate will not change for a specified period of time, typically the first year. Some companies offer products which guarantee the initial rate for longer periods of time - 2 to 10 years.

A policy with payments being made to the annuitant soon after it is purchased - as early as 30 days. The annuitant's age and sex, together with current investment assumptions, are factors that insurance companies use to determine the amount of payment.

The rate of interest set by the insurance company periodically based on the prevailing market rates.

A level stream of income payments for the rest of the annuitant's life.

Annuity purchased outside of an IRS-approved pension plan. Contributions are made with after-tax dollars. Earnings can accumulate tax-deferred until withdrawn.

The removal of some, but not all, policy funds by the owner. Most annuities allow up to 10% of the annuity value to be withdrawn in a given year with no withdrawal charges. The amount withdrawn is usually taxable. Tax penalties will apply if the withdrawal is made before the owner is 59 and 1/2 years of age (unless an exception applies).

Policy provision allowing withdrawal of cash out of an annuity before the owner reaches the age of 591/2. Withdrawal may be subject to a 10% federal tax penalty in addition to any income taxes that may be due, and to a possible withdrawal charge from the insurance company.

Contractual provisions dealing with how funds can be paid out during the distribution period. The owner exchanges the entire cash value for an income guaranteed for a fixed period of time or installment payments for a fixed amount. The owner may also choose a fixed period certain and life thereafter, or payments paid for life and then to the owner's spouse for his/her life.

A policy purchased with a lump sum single premium payment and distributing a series of payments beginning either immediately or at some future date.

A period certain annuity that provides payments for a specified period of time elected by the annuitant, usually 5 years or more. If the annuitant or the annuitant and spouse die before the end of that period, distribution will continue to provide benefits to a named beneficiary for the duration of the period.

Surrender

Termination of the contract by the owner. Most annuity contracts impose surrender charges during the early years of the policy. All accumulated interest will usually be taxable to the owner at time of surrender, and tax penalties (10%) will apply if the owner is not yet 59 and 1/2 years of age (unless an exception applies).

This charge is assessed for a period of time against the funds withdrawn after the issue of a deferred annuity. It is expressed as a percentage of the value withdrawn.