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Index Annuity Definitions

The Maximum interest rate that can be credited to your equity index annuity policy in a policy year or over the term of the policy.

Base Interest Rate
The Base Rate is the Current Rate less the Bonus Rate, if any. In many cases the Base Rate and the Current Rate are the same

Bonus Rate
A Bonus Rate is the "extra" or "additional" interest paid during the first year. (the initial guarantee period). The term "Bonus Rate" also means that extra interest paid is a pure bonus with no vesting requirements to earn it... a true bonus.

Interest Crediting
Interest that is creditied to your policy is added to your principal as well as interest credited in prior policy years. Some companies do not compound the gains credited to equity index policies from prior years. This dramaticaly reduces the overall rate of return earned by your money.

Current Interest Rate
This is the interest rate that an annuity is paying, the sum of the base rate, if any and the bonus rate, if any. The current rate is set by the insurance company at the time of issue and is guaranteed for specific length of time.

The minium interest rate that can be credited to your policy equity index annuity in a year or over the term of your contract.

After the initial interest rate guarantee the company decides what the interest rate will be for the following policy year. This rate is based on the company's original investment portfolio and how the company designed the product.

For example, if the annuity policy at the time of issue paid a "current rate" of 7.50% which was guaranteed for one year, and had a "base rate" of 6.50%, the company could declare a new interest rate for the second policy year of 6.0%. Each policy year thereafter the company would declare a new interest rate for that policy year.

Participation Index Rate
The amount of the percentage change (which is set by the company) used to determine the amount to be credited to your policy for that year. If the Participation Index Rate was 90% and the percentage change of the S&P 500 Index was 10%, then the 10% change would be multiplied by the Participation Index Rate of 90% resulting in an Interest Rate of 9.0% being credited to your policy for that term.

Percentage Change
The change in the S&P 500 Index from the beginning of the term to the end of the term expressed as a percentage. The term could be one policy year, 5 policy years or 7 policy years, etc. If the S&P 500 was 500 at the beginning of the policy year and closed at 550 at the end of the policy year, there would have been a 10% increase in the S&P 500 Index. In years where the S&P 500 Index is negative the percentage credited to your policy is (0). In this case there would be no change in your policy value.

Premium Bonus
Additional money that is credited to the accumulation account of an annuity policy under certain conditions. First, the amount of money credited to the policy is calculated as a percentage of your initial premium. Secondly, the money credited to your accumulation account "vests" in your policy after a certain number of years.

For example, if your initial premium is $10,000 and the policy pays a 4.0% premium bonus and vest in years 6 through 9, your policy is credited with $400.00. The $400.00 earns interest as if it were your original premium, however if you surrender your policy during the first 5 years you DO NOT receive the Premium Bonus and the interest it earns. During year 6, 7, 8 and 9 you "vest into" 25% of the Premium Bonus and its earned interest each year.

The transferring of funds accumulated within an employer sponsor retirement plan to another employer sponsored retirement plan or IRA.

Section 1035(a) Exchange
The tax-free exchange of one nonqualified annuity contract or life insurance policy for another with a different company. For example, the transfer of a life to life; life to annuity; annuity to annuity policy. Partial transfers are also permited.

Serial Issue
A number of annuity contracts, issued by the same company within a twelve month period to the same owner.

Settlement Options
The methods by which the insurer may pay annuity or life insurance policy proceeds to the annuitant, contract owner, policy owner or beneficiary.     _____________________________________________________________

The direct transfer of funds from one financial institution to another financial institution for the benefit an individual. For example; the transfer of IRA funds from a bank to an insurance company. The check issued to the insurance company is for "the benefit of James Jones". The direct transfer avoids the 20% withholding since the check is issued an institution "for the benefit of James Jones" and is not paid directly to James Jones.

The money that you put into an annuity will earn interest or receive dividend income or capital gain distributions. These “earnings”, unlike money in a savings account, mutual fund, certificate of deposit are not taxed in the year in which they are earned. Thus the “earnings” will continue to grow and compound tax free until withdrawn.  

Just in case you have a CD renewing soon...you may want to see how a tax deferred annuity could really help your "Bottom Line" with interest rates that are guaranteed, tax deferral... and other benefits. Call us for more information. (800) 601-5433 FREE

Savings Advantages

Many people today are using t
ax-deferred annuities as the foundation of their overall financial plan instead of certificates of deposit or savings accounts. Although CD's and Annuities are very similar there are significant differences between the two. The most important difference is that annuities allow for the deferral of the taxes due on the interest earned until the interest is withdrawal! By postponing the that tax width a tax-deferred annuity, your money compounds faster because you can earn interest on dollars that would have otherwise been paid to the IRS. 

Later, if you decide to take a monthly income, your taxes can be less because they will be spread out over a period of years. Like Certificates of Deposits, annuities have a penalty for early surrender, however most annuity contracts have a liberal "free withdrawal" provision.

Tax Advantages
You pay NO taxes while your money is compounding. You can also pay a lower tax on random withdrawals because you control the tax year in which the withdrawals are made, and only pay taxes on the interest withdrawn.

Tax deferral gives you control over an important expense - your taxes. Any time you control an expense, you can minimize it. The longer you can postpone this particular expense, the greater your gain when compared to the gain you would make with a fully taxable account