Glossary of Terms
Annuitant. The person or persons on whose life or lives the Annuity is based, primarily for the purpose of Annuitization. The Contract Owner decides who the Annuitant will be. The Contract Owner and Annuitant are most often the same person.
Annuitize. The transaction that changes a Deferred Annuity from the Accumulation Phase to the Payout Phase.
Annuity. A contract sold by an insurance company to provide payments to the holder at specified intervals, usually after retirement. Annuities have two phases: Accumulation and Payout.
Beneficiary. The recipient of an Annuity's value on the death of the Contract Owner.
Fund Value. The Fund Value is the sum of all Premiums, increased by accumulated interest, less the amount of any gross withdrawals. The Fund Value is not necessarily the same as the Surrender Value.
Premium. Money paid into an Annuity. For purposes of simplicity, people sometimes talk about "deposits" into an Annuity.
Surrender Value. The amount of money to be received by the Contract Owner if an Annuity is surrendered. It is the Account Value less any Surrender Charges and Market Value Adjustment. (ELCO has no MVA’s.)
Contract Owner. The person or entity who purchases the Annuity and owns rights to the contract. This person names the Annuitant and the Beneficiary and may exercise the provisions of the Annuity contract.
Cost Basis. Actual Premium or Principal paid to a Non-Qualified Annuity is referred to as the "Cost Basis" of the Annuity contract. Since it is money that has already been subject to Income Tax, it will not be taxed upon withdrawal.
Tax-Deferral. The ability to delay paying Income Tax on earnings until those funds are withdrawn from the Annuity.
Fixed Annuity. An investment vehicle offered by an insurance company that includes a minimum guaranteed interest rate and account value.
Market Value Adjustment (MVA). An adjustment (positive or negative) that is applied when an account is liquidated early. This is a feature built into some annuities which is designed for the policy owner to share the investment risk associated with the annuity. ELCO does not have any Market Value Adjustments in any of its annuity policies. We believe this is an advantage to our policyholders.
Multi-Year Guarantee Annuity (MYGA). An Accumulation Phase Annuity which guarantees an interest rate for the full guaranteed period.
Guarantee Period. The period of time during which interest rates are guaranteed by the insurance company.
Renewal Interest Rate. The interest rate that will be credited after the initial Guarantee Period.
Rider. A contract provision which changes the policy's features or rules. Some riders may allow for additional withdrawal or payout options not available in the base contract.
Death Benefit. The payment made to the Beneficiary upon the death of the Owner as described in the contract.
Penalty-Free Withdrawal. A withdrawal that is permitted from an Annuity without the penalty of a Surrender Charge or Market Value Adjustment. (ELCO has no MVA’s.)
Surrender Charge Period. The period during which Surrender Charges will be subtracted from an Annuity's Account Value if funds are withdrawn from the Annuity.
Flexible Premium Annuity. An annuity that accepts multiple payments of Premium.
Free-Look Period. The period of time after an Annuity contract is delivered when the Contract Owner may cancel the policy without penalty. The specifics of the free-look period are set by state regulation.
Single Premium Annuity. An Annuity that accepts either a single payment or a number of payments over a very short period of time.
Types of Annuities
The types of annuities can vary greatly and it is important to ensure that the customer understands all components that their annuity contains. An annuity may provide two options in a single plan.
Single Premium. An annuity that is started with a single premium payment to the issuing company. No further payments to the plan are required. ELCO classifies its MYGA policies as single premium deferred annuities. However, we allow additional premium payments to be made during the first 90 days of the policy. This is especially useful when multiple transfers of premiums arrive at different dates.
Flexible Premium. An annuity which has the ability to continue to add funds to the account. Companies and products differ in the minimum requirements for additional premiums to be added to the policy.
Deferred Annuity. An annuity that will grow tax-deferred prior to annuity payments and may be subject to IRS guidelines.
Immediate Annuity. An annuity that is purchased with a premium up front in exchange for residual payments after purchase.
Fixed Annuity. An annuity that allows the premiums to accumulate at a rate set by the issuing company.
Indexed Annuity. An annuity that offers indexed-based crediting based upon the performance of an external market. Indexed annuities generally contain a minimum fixed rate of interest to offset poor market performance.
Variable Annuity. An annuity in which the policyowner bears the investment risk.