Annuity Glossary: Key Terms to Know

Article Summary:

Understanding annuity terminology can make financial decisions feel more manageable. This glossary breaks down key Multi-Year Guarantee Annuity (MYGA) terms in clear, straightforward language, helping you better understand how annuities work and what to expect throughout the life of your contract. Whether you’re new to annuities or just need a refresher, it’s a helpful guide you can return to anytime.

Understanding annuity terms can help you make informed decisions. Our glossary breaks down key terms in simple, clear language. Whether you’re new to annuities or just need a refresher, this guide will help you navigate the essentials with ease.  

Key Terms

A

• Accumulation Period: Is the period your money earns a guaranteed interest rate, growing tax-deferred until you choose to withdraw your money or Annuitize the contract.

• Anniversary Date: The same date each year that marks when the contract was issued and became effective.

• Annual Renewal Rate: Interest rate declared annually after the end of the interest rate guarantee period. The rate is subject to change annually but can never be less than the minimum guaranteed interest rate stated in the contract.

• Annuity Value: The annuity value of the contract is the total amount of net annuity premium plus the credited interest less any Partial and/or Systematic Withdrawal and any associated Surrender Charges and Market Value Adjustments.

• Annuitization: Conversion of the Surrender Value of the annuity at the end of the accumulation period into regular guaranteed income payments.

B

• Base Rate: Guarantee Period Rate plus additional interest credit (if applicable).

• Beneficiary: The person you designate to receive the remaining value of your annuity if you pass away.

• Bonus Rate: A temporary interest rate increase only credited in the first year of the contract (if applicable).

C

• Compound Interest: Interest that is calculated on both your initial principal and the accumulated interest from previous periods. Also referred to as “interest on interest”.

• Contract: A legally binding agreement between you and the insurance company that outlines the terms, provisions, guarantees, and obligations of your annuity.

• Contract Value: See Annuity Value.

• Declared Interest Rate: This is the interest rate used in crediting interest to your contract. The initial declared interest rate will not change during the Interest Rate Guarantee Period. The declared interest rate does not include any additional interest. After the Interest Rate Guarantee Period, the declared interest rate is subject to change, but can never be less than the Minimum Guaranteed Interest Rate.

• Death Benefit: The greater of the Annuity Value or the Minimum Guaranteed Surrender Value of the contract. Available Death Benefit payment options are listed in the annuity contract.

E

• Effective Interest Rate: The rate of return on your annuity, factoring in compounding.

F

• Fixed Deferred Annuity: An insurance product where you contribute a sum of money that earns a guaranteed, fixed interest rate over a set period of time, allowing your money to grow tax deferred until the money is withdrawn.

• Free Withdrawal: Opportunity each year, after the first contract year, to take withdrawals up to 10% of the Contract value on the policy anniversary date, without penalty.

I

• Interest Crediting: Refers to how and when interest is added to the value of the annuity. The Guaranteed Initial Interest Rate is set at issue and guaranteed for the remainder of the guarantee period selected. Premium begins earning interest at the declared rate from the date premium payment is received. Interest is calculated on a compound method assuming a 365-day year and credited daily.

• Interest Rate Guarantee Period: Initial declared interest rate for the guarantee period selected only.  

M

• Market Value Adjustment (MVA): A potential adjustment to your withdrawal amount based on market interest rate changes.

• Minimum Guaranteed Interest Rate: Minimum rate of interest that can be used in crediting interest to the contract after the guarantee period has ended. Rate is determined at contract issue and is not subject to change.

• Minimum Guaranteed Surrender Value (MGSV):  The minimum guarantee upon surrender of the annuity contract. At no time will the Surrender Value of the contract be less than 90% (91% in CA) of the premium received, less any withdrawals, accumulated at the minimum guaranteed interest rate.

• Multi-Year Guarantee Annuity (MYG Annuity): An insurance contract purchased with a lump sum of money that guarantees a fixed interest rate for a set period of time. MYG Annuities are a type of fixed deferred annuity.

N

• Non-Qualified Dollars: Are funds that come from after-tax sources. Since you’ve already paid taxes on the principal, typically only the interest earned in the MYG annuity is taxable upon withdrawal.

P

• Partial Withdrawal: A withdrawal of less than the full Surender Value of the Contract. Partial withdrawals may be occasional elections or Systematic Withdrawals of interest or scheduled amounts. Available at any time for partial distribution over the Free Withdrawal amount. Surrender Charges and minimum values will apply.

• Premium: The initial amount of money you pay into a MYG Annuity.

• Penalty-Free Withdrawal: The portion of funds (up to 10% annually) that can be withdrawn without surrender charges after the first contract year.

Q

• Qualified Dollars: Are funds that come from tax-advantaged retirement accounts like a 401(k), traditional IRA, or other pre-tax retirement plan. These funds haven’t been taxed yet, so withdrawals are generally taxed as ordinary income.

R

• Renewal Rate: Interest rate declared annually after the end of the interest rate guarantee period. The rate is subject to change annually but can never be less than the minimum guaranteed interest rate stated in the contract.

S

• Single Premium: an annuity, often a fixed-rate annuity, into which funds cannot be deposited after the initial premium has been paid.

• Surrender: Termination of the contract in exchange for the Surrender Value.

• Surrender Charge: A fee imposed if you withdraw more than the allowed annual amount during the surrender charge period as stated in the contract.

• Surrender Charge Period: The number of years you must keep funds in your MYG Annuity to avoid incurring the Surrender Charge.

• Surrender Value: The amount paid to the contract owner when the contract is surrendered. The Surrender Value is equal to the Annuity Value minus any applicable Surrender Charges, applicable Market Value Adjustments, and any applicable federal or state Premium Taxes which have otherwise been deducted or offset.

T

• Tax-Deferred Growth: A feature that allows your earnings to grow tax-free until money is withdrawn.

W

• Withdrawal Charge: An amount subtracted from the contract value if requested at a time when the withdrawal charges apply, such as a Surrender Charge.

Information herein is not intended to be legal or tax advice. You should consult with your own attorney and tax advisor for your specific circumstance.

Current U.S. tax law provides that earnings from an annuity are taxable only upon withdrawal as ordinary income. Any withdrawals in excess of the surrender free amount are subject to surrender charges and any market value adjustments.

Please refer to product references and disclosures for detailed information. 

American National is a group of companies writing a broad array of insurance products and services and operating in all 50 states. American National Insurance Company was founded in 1905 and is headquartered in Galveston, Texas. Not all products and services are available in all states. Form Series: MYG24; AI20 (Forms may vary by state). CA Form: MYG16(04).