Annuity paperwork is full of words that sound like they need a translator. This glossary is our plain-English decoder ring. Every entry starts with a one-sentence answer, adds a homey example with real numbers, then a couple of questions people actually type into search. No sales spin, just what each term means and why it matters to your money. Browse A to Z, or jump to a term from any product page. When a definition raises a bigger question, an advisor can walk you through it.
Jump to a letter, or start with the four you will meet on almost every product page: MYGA, FIA, surrender period, and free withdrawal.
A 1035 exchange is an IRS rule that lets you move money from one annuity or life insurance policy directly into another without triggering income tax on the gains. Named for Section 1035 of the tax code, it keeps your tax deferral intact when you switch products. Read the full definition
An AM Best rating is a letter grade from the AM Best agency that measures an insurance company's financial strength and its ability to pay claims. Grades run from A++ at the top down through B, C, and lower, and they signal how dependable an insurer is. Read the full definition
Annuitization is the step of converting your annuity's balance into a stream of regular income payments, usually for a set number of years or for the rest of your life. Once you annuitize, you generally trade the lump sum for the guaranteed payments in return. Read the full definition
A cap rate is the maximum interest a fixed index annuity or indexed universal life policy will credit for a given period, no matter how high the underlying index climbs. If the index gains more than the cap, your credited interest stops at the cap. Read the full definition
A fixed index annuity, or FIA, is an annuity whose interest is tied to a market index like the S&P 500, but with a floor that protects your principal from index losses. You share in some of the index's gains, up to a limit, and skip the down years. Read the full definition
A free withdrawal is the amount you can take out of an annuity each year during the surrender period without owing a surrender charge or market value adjustment. It is commonly capped at 10% of your account value per year. Read the full definition
A guaranteed lifetime withdrawal benefit, or GLWB, is an optional annuity rider that lets you withdraw a set yearly percentage of a benefit base for the rest of your life, even if the account value runs down, while still keeping access to any remaining balance. It is backed by the insurer's claims-paying ability. Read the full definition
Index crediting is the method a fixed index annuity uses to turn a market index's movement into the interest it pays you. A common method is annual point-to-point, which compares the index value on your start date to its value one year later and credits gains up to your cap. Read the full definition
A market value adjustment, or MVA, is an extra plus-or-minus tweak applied to a large early withdrawal from certain annuities, based on how interest rates have moved since you bought. If rates rose, the MVA usually reduces your payout; if rates fell, it can add to it. Read the full definition
A MYGA, or multi-year guaranteed annuity, is a fixed annuity that pays one locked interest rate for a set number of years, backed by the insurance company that issues it. Think of it as a CD's cousin from the insurance world, with tax-deferred growth. Read the full definition
A participation rate is the percentage of an index's gain that a fixed index annuity credits to your account. A 55% participation rate means that if the index rises 10%, you are credited 5.5%. It is one of the levers insurers use to set your indexed return. Read the full definition
A rider is an optional add-on you attach to an annuity to give it an extra feature, such as guaranteed lifetime income or an enhanced death benefit. Most riders come with an annual fee charged against your account value in exchange for the added protection. Read the full definition
A spread, also called a margin or asset fee, is a set percentage a fixed index annuity subtracts from an index's gain before crediting the rest to you. If the index rises 10% and the spread is 3%, you are credited 7%. It is another lever insurers use in place of, or alongside, a cap. Read the full definition
A surrender charge is the fee an insurer subtracts if you withdraw more than your allowed free amount during the surrender period. It is set as a percentage that usually starts high in year one and steps down each year until the surrender period ends. Read the full definition
A surrender period is the set number of years, early in an annuity contract, during which pulling out more than your allowed free amount triggers a surrender charge. It usually matches the guarantee term and shrinks each year until it disappears. Read the full definition
Yield to surrender is your true annual return on a MYGA if you cash out at the end of the surrender period, after any surrender charges or market value adjustments are figured in. It is a more honest apples-to-apples number than the headline rate alone. Read the full definition
Reviewed by AnnuaLife editorial. Definitions are educational and not investment, tax, or legal advice. Figures are examples as of July 30, 2026; rates and product terms vary by state and change.
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