Education Update: Understanding the Language of Annuities and Insurance

May 16, 2018

Understanding complex terminology is important to protecting, sustaining, and growing your investments. Here is a guide to some of the most common financial terms:

  • Annuitant: The person designated to receive annuity or pension payments. The annuitant also refers to a beneficiary receiving payments from the policy.[i]
  • Annuitization: When the financial amount you hold in an annuity begins to pay regular distributions. These payments are either for a set period or for as long as the annuitant is alive, depending on the specific policy you bought.[ii]
  • Annuity Certain: A type of annuity where the policyholder receives regular, ongoing payments on a predetermined schedule based on a specific number of years. These payments continue to be paid to beneficiaries if the annuitant dies during the distributions schedule.[iii]
  • Discretionary Income: The amount of personal money you have left for purchases after you account for taxes and any necessary items, such as your home and food.[iv]
  • Dividend: Money that policyholders receive on participating insurance that refunds them part of their paid premium. The partial amount reflects the difference between what you were charged as the premium and the combined true investment experience, expenses, and mortality. Policyholders do not pay taxes on these distributions.[v]
  • Insurable Interest: A required feature when purchasing life insurance on another individual, as well as a basic requirement when you buy the policy.[vi] You gain a portion of the purchased value, and it helps protect policyholders against intentional, harmful acts.[vii]
  • Lapse: When you as a policyholder do not fulfill your contract obligations, such as timely payments on premiums, and lose your policy, privilege, or right to your contract.[viii]
  • Participating Policy: A contract you enter when you purchase life insurance that will pay you dividends as the policyholder.[ix]
  • Principal: Refers to the original amount of money you paid into your investment when purchasing the asset.[x]
  • Underwriter: The individual or organization that reviews your application for purchasing an investment, such as life insurance. They contribute to making the decision on the investment’s value and application approval, along with the entity issuing the investments.[xi]

These terms represent words and phrases commonly associated with insurance policies and annuities contracts.

If you have any questions about the terms you read in your statements or other communications, feel free to contact us at any time. We’re always happy to help provide you with the answers you need to make sense of your financial life.