July 30, 2025
What Is an Annuity?
Key Terms Every Policyholder Should Know
An annuity is a financial product designed to help you grow your money and convert it into a steady stream of income—usually for retirement. In its simplest form, you make a lump-sum payment or a series of payments to an insurance company. In return, you receive regular income in the future, either for a specific number of years or for the rest of your life.
Annuities can offer guaranteed growth, tax-deferred earnings, and lifetime income, making them a helpful solution for people who want to protect their retirement savings and avoid outliving their money.
But if you’ve ever read an annuity contract, you know the jargon can be intimidating. To help you confidently navigate your options, we’ve broken down the most common annuity terms you’re likely to encounter.
Annuity Glossary: Key Terms Explained
Annuitant
The person whose life expectancy determines the payout schedule. In most cases, this person cannot be changed once the contract begins.
Beneficiary
The person or entity who receives the annuity’s death benefit if the owner passes away before payouts begin.
Death Benefit
A payment made to the beneficiary if the annuity owner dies before the income phase starts. (Tax implications may apply—consult a tax advisor.)
Guaranteed Interest Term
A period during which the annuity earns a fixed, guaranteed interest rate. Great for predictable, steady growth.
Income Date (Annuitization Date)
The date when the annuity begins paying out income.
Market Value Adjustment (MVA)
An interest-rate-based adjustment applied when funds are withdrawn early during a guaranteed interest period. It can increase or reduce the amount you receive.
Maturity Date
The latest possible date by which income payments must begin, according to the contract.
Minimum Account Value
The lowest allowable balance for your annuity without triggering penalties or contract termination.
Minimum Guaranteed Interest Rate
The minimum interest your annuity will earn after the guaranteed period ends.
Owner
The individual or entity who controls the annuity and makes contract decisions.
Payee
The person or entity receiving the income payments. The payee may or may not be the same as the owner or annuitant.
Penalty-Free Withdrawal
Some annuities allow limited annual withdrawals without surrender charges or an MVA.
Required Minimum Distribution (RMD)
For qualified annuities, the IRS mandates minimum yearly withdrawals once you reach a certain age (typically 73 or older).
Surrender vs. Withdrawal
Surrender: Cancelling the entire contract for a lump sum payout (often with fees).
Withdrawal: Taking out a portion of the money; may also trigger fees or adjustments
Qualified vs. Non-Qualified Annuities: What’s the Difference?
One of the most important distinctions is whether your annuity is qualified or non-qualified, as this affects how your money is taxed.
-Qualified Annuities are funded with pre-tax dollars—typically through a 401(k) or traditional IRA. Taxes are deferred, meaning you’ll owe income tax on the full payout (both contributions and earnings) when you start receiving income.
-Non-Qualified Annuities are funded with after-tax dollars, usually from personal savings. In this case, only the earnings are taxable when you begin receiving payouts.
In a nutshell:
Qualified = Pre-tax money → taxed later
Non-qualified = After-tax money → only earnings taxed later
This simple difference can affect your retirement income and tax strategy—so it’s important to know which one you have!
Wrap-Up: Why Knowing These Terms Matters
Understanding annuity terminology ensures you make informed choices and avoid surprises when managing your retirement income. Whether you’re considering a new annuity or reviewing an existing one, this glossary serves as your go-to reference.
Looking for annuity options? Visit our Retirement Solutions and Annuities page to explore our flexible plans.
