Commonly Used Terms

Financial lingo isn't the easiest to understand, especially when it comes to the annuity industry. We'll help you along with this glossary of common terms found throughout our site. Hopefully, it will give you a better understanding of the process.

A

  • Accrual of Interest: The process where interest builds over time.
  • Accumulation Phase: Period of time where an annuity grows in cash value before payments are distributed.
  • Annuitant: The person who receives annuity benefits based on their life expectancy.
  • Annuitization: When annuity benefits are converted to income through a series of periodic payments.
  • Annuity Beneficiary: The person who receives benefits if the annuity owner dies.
  • Annuity Contract: Legal agreement between an insurance company and the person who purchases the annuity.
  • Annuity Issuer: The insurance company that sells the annuity, and pays its benefits.
  • Annuity Owner: The person or party that purchases the annuity and pays premiums.
  • Annuity Products: Investment options used as retirement plans or personal injury settlements.
  • Annuity Provider: Insurance companies that offer certain guarantees and options for retirement income.
  • Annuity: An investment with money-back guarantees that provides periodic payments with interest over a period of time. They often provide additional income after retirement.
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B

  • Beneficiary: The person that receives benefits, such as money, from an annuity or structured settlement.
  • Better Business Bureau: A nonprofit organization devoted to assisting businesses and protecting consumers.
  • Bond: Legal agreement representing a loan that earns interest.
  • Broker: The person or legal firm active in arranging a financial exchange between a buyer and seller.
  • Buyout: Immediate funds from selling an annuity.
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C

  • Capital Gains: The difference in profit or loss when an asset, like an annuity, is purchased or sold.
  • Career Agents: Insurance company employee.
  • Cash Advance: Money that is accessible before it is earned.
  • Cash Value: The amount of money that can be withdrawn from an annuity after surrender charges are subtracted from total value of the annuity.
  • Catastrophic Injury Case: Deals with clients who have serious injuries that result in long-term consequences.
  • CBC Settlement Company: Headquartered in Conshohocken, Pennsylvania, this settlement purchasing company partners with Annuity.org. It was founded in 2004 and holds an “A” rating from the Better Business Bureau.
  • Certificates of Deposits (CDs): An insured financial product, consisting of money deposited and held for a fixed period of time during which the sum earns interest. It is similar to a savings account.
  • Claimant: The person in a lawsuit who is making a claim.
  • Combination Annuity: Made up of two annuities; one paid out immediately, one paid out later.
  • Compensation: An award, often in the form of money, given to make up for a loss.
  • Compound: The process where investments earn interest.
  • Contribution Limits: The maximum amount you can contribute to a retirement fund.
  • Contributions: Payments made to a fund.
  • Court Approval of Best Interest: Necessary judgment in order to sell annuity payments
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D

  • Damages: Legal award, often monetary, to compensate for injuries.
  • Death Benefit: Part of some annuity contracts, guaranteeing payments will go to beneficiaries if annuitant dies.
  • Defendant: The person or entity sued or accused in a legal matter.
  • Deferred Annuity: Annuity payments are delayed until the owner opts to receive them.
  • Deferred: Postponed; in taxes, to be paid at a later date.
  • Depleted: Emptied of funds.
  • Direct Funders: Provides annuitants money directly, rather than negotiating between parties.
  • Disability Advocate: Trained to get disability claims approved.
  • Distributions: Payments from an annuity.
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E

  • Early Withdrawal Penalty: IRS fee of 10 percent for withdrawals made by those under 59 ½.
  • Employer-Sponsored Retirement Account: An account that is able to grow tax-differed.
  • Equity-Indexed Annuity: A combination of a fixed and variable annuity.

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F

  • Factoring Companies: Purchases settlements and provide short-term access to money.
  • Factoring Transaction: Formal name for selling a structured settlement.
  • Federal Deposit Insurance Corporation (FDIC): The Congress-run agency responsible for supervising and insuring stability of financial institutions.
  • Fixed Annuity: A contract where the payment amount and time period of distribution are both fixed.
  • Flexible Premium: Following the first premium payment, both the amount and frequency of deposits in this annuity can change.
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G

  • Guaranteed Income Security: An annuity benefit of receiving lifetime disbursement of payments.
  • Guaranteed Payments: Annuity contracts that specify payments will be made whether the annuitant is living or deceased.
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H

  • Hidden Fees: Costs that are not disclosed upfront.
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I

  • Immediate Annuity: Begins paying you within a year, rather than after a long-term accumulation phase; also known as an income or single premium immediate annuity (SPIA).
  • Income Tax: A government tax contingent upon how much money is earned annually.
  • Independent Broker Dealers: Firms responsible for trading securities.
  • Indexed Rate Annuity: A fixed annuity with an option of choosing a declared interest rate or one based on an outside stock index.
  • Individual Retirement Accounts (IRA): A type of savings account offering major tax benefits.
  • Inflation: Economic term describing the increase in cost of goods and services as time passes.
  • Injured Party: The person or group of people suffering from an adverse circumstance in a lawsuit.
  • Installment Refund Annuity: The contract stipulates that if the annuitant dies before all income benefits are paid, a beneficiary will receive the difference.
  • Interest Rate: The amount charged or paid for using money.
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L

  • Life Contingent Payment: A payment for a structured settlement that is discontinued when the annuitant dies. The family does not receive remaining payments.
  • Life-with-Period Certain Annuity: Type of annuity that has smaller payments, but guarantees a specified amount of payments. If the annuitant dies before the period ends, payments will go to a beneficiary. If the annuitant outlives the payment period, there will still be payments until the annuitant dies.
  • Liquidity: The ability to easily access money.
  • Lump-Sum Payment: A one-time payment, rather than a series of payments.
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M

  • Monetary Settlement: A lawsuit resolution resulting in a payment.
  • Money Market Accounts: Based on interest rates from traded loans between banks and other institutions.
  • Mortality Credits: Based on how long one lives, money accumulates which can be transferred from the annuitant to a beneficiary.
  • Mutual Funds: Professionally managed investment accounts used with securities such as stocks, bonds and other assets.
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N

  • National Association of Settlement Purchasers: Serves the public by providing information on the practice and regulations of secondary market of settlement purchasers.
  • National Structured Settlement Trade Association: A resource to settlement claimants and professionals who work with accident survivors and dependents.
  • Nonqualified Annuities: This type of settlement is used when claims for damages fall outside the usual scope of physical injury, sickness or wrongful death.

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P

  • Partial Purchase: Choosing to sell only a portion of annuity payments.
  • Payee: The person receiving annuity funds.
  • Payment Stream: Annuity income that is paid out, typically in a series of payments.
  • Payout Phase: The second phase of annuity life where payments are made.
  • Pension: a defined, long-term financial vehicle sponsored by a company to guarantee income to retired workers later in life.
  • Periodic Disbursement: Payments made at regular intervals.
  • Periodic Payment Settlement Act (PPSA): Signed into law in 1982, this act promotes the use of structured settlement by providing certain tax benefits.
  • Personal Injury Lawsuit: Legal matter that may result in an agreement that is paid in a lump sum or structured settlement.
  • Plaintiff: The party who initiates a lawsuit.
  • Premium: A regular payment made to keep insurance coverage active.
  • Present/Future Value: The difference between the cash value of an annuity now and the value years later.
  • Principal: The amount that is originally invested, not including subsequent interest.
  • Probate: The legal process of handling a deceased person’s estate.
  • Provision: A statement adding to the specifications of a law or contract.
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Q

  • Qualified Annuities: The traditional structured settlement for physical injury or sickness claims.
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R

  • Rider: A provision added to a contract.
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S

  • Sanctioned: Approved by an official.
  • Secondary Market Annuity (SMA): An annuity purchased from the original owner, then transferred to a third party, which may then sell payments at a discount.
  • Secondary Market: The competitive industry where annuity payments are purchased in return for lump-sum cash payments.
  • Securities: Financial instrument that can be used as a tradable asset.
  • Single Premium Annuity: Purchased with a lump-sum payment, instead of a series of payments. It is also known as an immediate annuity.
  • State Lottery Commission: State-run lottery regulatory agencies.
  • Structured Settlement Protection Act (SSPA): Passed in 1997, these state-defined laws originated in Illinois and regulate the secondary market.
  • Structured Settlement: A legally agreed upon settlement, paid in the form of an annuity, or schedule of continuing payments.
  • Surrender Charge: A fee for withdrawals made before the end of the surrender period.
  • Systematic Withdrawal: Method of annuity distribution where deferred annuity payments can be scheduled at regular withdrawals instead of a guaranteed income stream.
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T

  • Tax-Deferred: Describes income that can grow free of taxes.
  • Taxpayer Relief Act of 1997: Allowed structured settlement use for workers’ compensation cases.
  • Time Value of Money: The changing value of money based on earned interest and inflation over time.
  • Transfer of Structured Settlement Payment Rights: Must be approved by a judge.
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V

  • Variable Annuity: Value based on fluctuating interest rate from various smaller investments.
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W

  • Wire houses: Brokerage firms which buy and sell financial securities.
  • Withdrawals: Taking money out of an account.
  • Workers’ Compensation Claim: A lawsuit regarding work-related injuries or loss of income; usually result in a structured settlement.
  • Wrongful Death Claim: A lawsuit regarding death liability; usually result in a structured settlement.
  • Wrongful termination: A lawsuit regarding illegal employment termination; usually result in a structured settlement.
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