The Maximum interest rate that can be credited to your equity index annuity policy in a policy year or over the term of the policy.
Base Interest Rate
The Base Rate is the Current Rate less the Bonus Rate if any. In many cases
the Base Rate and the Current Rate are the same.
A Bonus Rate is the "extra" or "additional" interest paid during the first year.
(the initial guarantee period) The term "Bonus Rate" also means that extra interest
paid as a pure bonus with no vesting requirements to earn it... a true bonus.
Compounding of Gains
Interest that is creditied to your policy is added to your principal as well as interest
credited in prior policy years. Some companies do not compound the gains
credited to equity index policies from prior years. This dramaticaly reduces the
overall rate of return earned by your money.
Current Interest Rate
This is the interest rate that an annuity is paying it is the sum of the base rate, if any and
the bonus rate, if any. The current rate is set by the insurance company at the time of issue
and is guaranteed for specific length of time.
The minium interest rate that can be credited to your policy equity index annuity in a year or over the term of your contract.
Old Money Rates or Renewal Rates
The Old Mony Rate is that rate declared by the company after the inital rate guarantee.
After the initial interest rate guarantee the company decides what the interest rate will be for the
following policy year. This rate is based on the company's original investment portfolio and how the
company designed the product.
For example if the annuity policy at the time of issue paid a "current rate"
of 7.50% which was guaranteed for one year and had a "base rate" of 6.50%, the company could declare a new
interest rate for the second policy year of 6.0%. Each policy year thereafter the company would declare a new
interest rate for that policy year.
Participation Index Rate
The amount of the percentage change (which is set by the company) used to determine the
amount to be credited to your policy for that year. If the
Participation Index Rate was 90% and the percentage change of the S&P
500 Index was 10%. Then the 10% change would be multiplied by the
Participation Index Rate of 90% resulting in an Interest
Rate of 9.0% being credited to your policy for that term.
The change in the S&P 500
Index from the beginning of the term to the end of the term expressed as
a percentage. The term could be one policy year, 5 policy years or 7
policy years etc. If the S&P 500 was 500 at the beginning of the policy
year and closed at 550 at the end of the policy year, there would have
been a 10% increase in the S&P 500 Index. In years where the S&P 500 Index
is negative the percentage credited to your policy is (0). In this case
there would be no change in your policy value.
Additional money that is credited to the accumulation account of an annuity policy
under certain conditions. First, the amount of money credited to the policy is calculated as
a percentage of your initial premium. Secondly, the money credited to you accumulation account
"vests" in your policy after a certain number of years.
For example; if your initial premium is $10,000 and the policy pays a 4.0% premium bonus
and vest in years 6 through 9, your policy is credited with $400.00. The $400.00 earns interest
as if it were your original premium, however if you surrender your policy, during the first
5 years you DO NOT receive the Premium Bonus and the interest it earns. During year 6, 7, 8 and 9
you "vest in to" 25% of the Premium Bonus and it's earned interest each year.
The transferring of funds accumulated within an employer sponsor retirement plan
to another employer sponsored retirement plan or IRA.
Section 1035(a) Exchange
The tax-free exchange of one nonqualified annuity contract or life insurance policy for another with a different company.
For example the transfer of a life to life; life to annuity; annuity to annuity policy. Partial transfers are also permited.
A number of annuity contracts, issued by the same company within a twelve month period to the same owner.
The methods by which the insurer may pay annuity or life insurance policy proceeds to the annuitant, contract owner, policy owner or beneficiary.
The direct transfer of funds from one financial institution to another financial institution for
the benefit on an individual. For example; the transfer of IRA funds from a bank to an
insurance company. The check issued to the insurance company is for "the benefit of James Jones".
The direct transfer avoids the 20% withholding since the check is issued an institution
"for the benefit of James Jones" and is not paid directly to James Jones.