Commonly Used Terms
| Midland National has created this glossary to educate
and inform our valued customers on terms commonly used in the annuity
industry.
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403(b) plan:
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In the United States, an arrangement that allows not-for-profit employers and
their employees to make contributions to a tax-deferred retirement savings plan
established for the benefit of employees. Sammons Annuity Group only accepts
non-Erisa 403(b) plans.
457 Plan:
In the United States, an arrangement that allows state and local governments
and their employees to make contributions to a tax-deferred retirement savings
plan established for the benefit of employees.
Accumulation Value:
Fixed Annuity-The sum of principal plus interest earned, minus withdrawals.
Variable Annuity-The sum of amounts invested in the general account (or fixed
account) and the current value of the investment divisions of the separate account,
minus withdrawals.
Annuitant:
A person who will receive annuity benefits and whose lifetime is used to measure
the length of time periodic income payments are payable under an annuity contract.
Annuitization:
The process in which an annuity is paid out according to the annuity option
the policy owner has selected.
Beneficiary:
The person(s) to whom the death benefit is paid in the event of the death of
the annuitant or owner of an annuity contract.
Claimant:
A person who submits a claim to an insurance company.
Cost Basis:
A contract owner’s initial investment in an annuity of after tax money,
plus any additional funds invested in the same annuity at a later date. This
applies to non-qualified annuities only.
Dollar Cost Averaging:
A variable annuity investment strategy that involves investing a fixed dollar
amount at regular intervals, regardless of market conditions.
Federal Deposit Insurance Corporation (FDIC):
In the United States, a federal agency that insures deposits made into member
banks and savings and loans up to $100,000 per person/per institution. Annuities
are not subject to FDIC insurance.
 Fixed
Annuity:
An annuity for which the insurer assumes the contract’s investment risk
and guarantees to pay a specified rate of interest on the accumulated value
for a specified period of time. Premiums paid for a fixed annuity are paid into
an insurer’s general account.
Free-look Period:
The period after the owner receives the annuity contract in which the contract
can be cancelled and treated as void from the contract date.
Guaranteed Interest Rate:
The percentage return that is stated by the company to be paid on funds in an
annuity.
Guarantee Period:
A period of time during which the company will credit a stated rate of interest.
The guarantee is usually one year unless stated otherwise.
Immediate Annuity:
An annuity under which periodic income benefit payments are scheduled to begin
one annuity period after the contract’s issue date.
Index Annuity:
A Fixed Annuity that offers the potential of market-linked growth with the safety
of a minimum interest rate guarantee over the term of the contract.
Index Cap Rate:
The Index Cap Rate is the maximum annual percentage increase in the
Index Value that can be credited to the annuity.
Index Margin:
Amount deducted from the index gain.
Inherited IRA:
An IRA that becomes the property of someone other than the spouse of the deceased
owner of the IRA.
Individual Retirement Account (IRA):
In the United States, a retirement savings plan that allows people with earned
income to deposit pre-tax earnings into a savings arrangement that is established
by an individual and that meets certain requirements specified in the federal
tax laws.
Joint Annuitant:
A person who is one of two or more people who will receive annuity benefits
.
Joint Owner:
The person or other entity that enters into a joint contract of insurance with
an insurer and actually jointly owns the insurance policy with another person
or entity.
Maturity Date:
The Maturity Date is the date on which income payments will begin from your
annuity. With the exception of contracts that have a fixed Maturity Date which
cannot be changed, the Maturity Date will automatically be set at the maximum
Maturity Date allowed in your state, provided you have not requested a specific
date on the annuity application. Please refer to your contract for the Maturity
Date provision applicable to your annuity.
 Non-Qualified
Funds:
Funds that have already been taxed. Non-qualified funds provide for
the cost basis in the policy.
Owner:
The person or entity to whom the contract is issued, who is entitled to exercise
all rights and privileges under the contract.
Participation Rate:
The percentage of index gain credited to
the annuity.
Pre 59 1/2 withdrawals (IRS Rule 72t):
Early distributions from your retirement plan that must be "substantially
equal" payments based upon one of the three methods approved by the IRS.
Once the distributions begin, they must continue for a period of five years
or until you reach age 59 1/2, which ever is longest.
Premium Tax:
A tax charged by certain states or any other governmental authority on either
the premium payment or value of the Separate Account.
Principal:
The original amount of funds on which interest is calculated.
Probate:
The legal process in which a court oversees the distribution of property left
in a will. Annuities have the ability to avoid probate.
Qualified Funds:
Funds that have not been taxed.
Required Minimum Distributions (RMDs):
Annual amounts that participants in qualified retirement plans and owners of
traditional individual retirement arrangements (IRAs) must begin to receive
by the year following the year the person turns age 70 1/2. Also known as minimum
required distributions (MRD).
Retained Asset Account:
A completely liquid, interest-earning account established for beneficiaries
to invest their funds, allowing time to make decisions on future plans.
Riders:
An addition to an annuity contract that becomes a part of the annuity contract
and that is as legally effective as any other part of the contract. Riders usually
expand or limit the benefits under the contract.
Roth IRA:
In the United States, a type of individual retirement arrangement (IRA) that
permits people within certain income limits to make nondeductible after tax
annual contributions and to withdraw money on a federal tax-free basis at retirement
age, assuming the contract has been in force for at least five years.
 Section
1035 exchange:
In the United States, a tax-free replacement of an insurance contract for another
insurance contract or annuity covering the same person that is performed in
accordance with the conditions of Section 1035 of the Internal Revenue Code.
Security:
A certificate that represents either ownership interest in a business (for example,
a share of stock) or an obligation of indebtedness owed by an institution (for
example, a bond).
Separate Account:
In the United States, an investment account that is subject to risk based on
market performance placed in variable insurance products such as variable annuities.
The contract owner assumes all risk for funds invested in the separate account.
Simplified Employee Pension (SEP) plan:
In the United States, a qualified employer-sponsored pension plan whereby an
employer establishes and makes contributions into an individual retirement account
or individual retirement annuity for each participating employee; however, the
employee owns the account. Self-employed people also may establish a SEP plan.
Also called SEP-IRA.
Subaccount:
One of several alternative pools of investments within an insurer’s separate
or segregated account into which a variable contract owner may allocate premiums
paid. Also known as variable investment account and variable subaccount.
Surrender Charge:
An amount charged to an annuity contract owner when he prematurely withdraws
a portion or all of the contract’s accumulated value (over any penalty
free amount). Also known as back-end load, contingent deferred sales load, and
withdrawal charge.
Surrender Period:
The period of time stated in the annuity contract during which a surrender charge
will apply to any full or partial surrender that is in excess of the penalty
free amount available.
Tax Deferred Basis:
Accumulation of interest on which income taxes are not payable until money is
withdrawn from the annuity.
Variable Annuity:
An annuity under which the amount of the accumulated value and the amount of
the periodic annuity benefit payments fluctuate in accordance with the performance
of a specified pool of investments. Premiums paid for a variable annuity are
deposited into an insurer’s separate account in the United States. Within
a Separate or Segregated Account, the insurer maintains many subaccounts that
allow the contract owner to invest in a wide variety of investments. The contract
owner assumes the investment risk for all funds in the separate account, while
the insurer assumes the risk for all funds in the general account (also known
as a fixed account).
If you're unable to find a term that you feel would be beneficial on this page,
please email us. We value
your feedback and will work to implement suggested terms that we find appropriate.
Midland National is dedicated to improving consumer awareness. Please contact
your certified financial consultant before making any investment decisions.
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