Learn and Plan | Essential financial terms to know: common annuity and life insurance terminology content
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Essential financial terms to know: common annuity and life insurance terminology

Dec 5, 2023, 3:46:11 PM | Reading Time: 5 min

From banking and credit cards to life insurance and retirement savings, there are lots of financial concepts and vocabulary to keep straight. Speaking the “language” can sometimes feel like a complicated task, but taking time to understand some basics can help boost financial literacy and support more confident decision-making. Here are common annuity and life insurance terms and how to better understand these products’ role in an individual’s financial plan.

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What is the definition of an annuity?

An annuity is an insurance contract between an annuitant and an insurance company, where in exchange for a premium, the insurance company offers growth potential and the option for guaranteed income. The annuitant will receive payments immediately or in the future and can use this money to supplement their retirement income.

Annuity terms and definitions

Various types of annuities are designed to meet specific needs, goals, and risk tolerance. Depending on the type of annuity you choose to explore, there may be some general annuity terms and terminology specific to the product. Here are several terms that are commonly used when discussing annuities:


An annuitant is a person who collects the regular payments of a pension or an annuity. The person may be the policyowner, or in some cases, another person such as the surviving spouse of the policyowner.

Immediate annuity

A type of annuity often purchased with a lump sum payment where the annuitant begins receiving an income stream within a short period, often within five years.

Deferred annuity

An annuity that can offer tax-deferred growth to help build retirement savings and guarantees income as a lump sum or income stream later in life.

Fixed annuity

In exchange for premium payments, this type of annuity earns a fixed interest rate and can offer a stream of guaranteed income payments in retirement.

Variable annuity

A type of annuity that offers a range of investment options and may grow on a tax-deferred basis based on the performance of those chosen investment options. The contract value can fluctuate based on the ups and downs of the stock market.


The money that an annuitant pays to an insurance company, either in a lump sum or multiple contributions, in exchange for income payments in the future.


Optional additions to an annuity contract that can provide benefits that meet specific needs, such as long-term care, income, or leaving a legacy. Riders are typically added for an additional cost.

Accumulation phase

The period of time when an annuity may earn interest and increase in value. This phase begins when premiums are paid.

Annuitization phase

The period of time when the annuitant begins to receive payments from the annuity, either in a lump sum or multiple income payments.


The person receiving the remaining contract value or premiums paid following the annuitant's death.

Withdrawal charge

Also known as a surrender fee, these charges require an annuitant to pay a fee if funds are withdrawn early or during a certain period of time.

What is the definition of life insurance?

Life insurance offers financial protection to a chosen beneficiary by providing a death benefit when an insured passes away. In most situations, the death benefit can be used as the beneficiary wants. Options may include:

  • Replacing lost income
  • Passing on an inheritance
  • Supplementing retirement income

In the event of a qualifying illness some life insurance policies also offer living benefits

Life insurance terms and definitions

Life insurance coverage can help ensure a family can continue their current lifestyle if the unexpected happens. There are different types of life insurance policies to match different financial needs, life stages, and the length of coverage needed. Common terms used when talking about life insurance include:

Term life insurance

Provides life insurance coverage for a set period of time, often 10, 15, 20, or 30 years. Term plans are often the most affordable type of life insurance protection and can be a good fit for young families or anyone with temporary financial needs that need to be covered.

Permanent life insurance

Can provide life insurance coverage for a person’s entire life and may offer the opportunity to build cash value that can be accessed through policy loans or withdrawals.

Indexed universal life (IUL)

A type of life insurance that offers death benefit protection and the opportunity to build long-term cash value by earning interest linked to the movement of a selected stock market index over a specific period. Although growth is based on a stock market index, the premium is not actually invested in the market or in the applicable index.


The owner of a life insurance policy and the only person who can name beneficiaries and make changes to the contract.


The person on which the life insurance policy is written.


The person(s) who receive the death benefit of the life insurance policy.

Death benefit

The amount of money paid to beneficiaries following the death of the insured.

Cash value

The portion of certain life insurance policies that can earn interest and may be accessed through withdrawals or policy loans for future financial needs.

Living benefits

Benefits that allow the policyowner to access a portion of the policy's death benefit while the insured is still living, if the insured is diagnosed with a qualifying illness. The money can be used to pay for hospital bills, replace lost income during treatment, or for other financial needs.


The process following the death of an insured when the beneficiary files for a policy’s death benefit. An insurance company will typically require a completed claim kit that may include a death certificate, life proof of death claimant’s statement, and other documents.

Effective date

The date when a life insurance policy goes into force. Once active, if the insured passes away after this date, the beneficiary may be eligible to receive the death benefit.


The process where an insurer determines the risk associated with insuring a life insurance applicant by evaluating medical history, health conditions, family history, and potentially bloodwork and exam results.

Get help learning the language

Seeking the help of a financial professional may be helpful when navigating the ins and outs of financial products like annuities and life insurance. As experts in their field, they can offer guidance, define standard terms, and explain solutions in more detail. It also allows one to ask questions and get clarification on anything confusing. Learning the vocabulary often associated with money management and financial planning can help boost overall knowledge and understanding — promoting more confidence when making financial decisions now and in the future.

The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.