A-Share Variable Annuity: A form of variable annuity contract where the contract holder pays sales charges up front rather than eventually having to pay a surrender charge.

Account Maintenance Fee: A fee a financial provider charges for administrative expenses including the expense for establishing and maintaining the variable account option.

Account Value: The value inherent in an annuity to the annuitant if (s)he does not surrender the contract. Cash surrender value is that value net of penalties which is stated in the contract. These penalties usually last seven years. At the end of year seven, account value equals surrender value.

Accumulation Period or Accumulation Phase: The period of time, prior to retirement, during which an annuitant is making payments or investments in an annuity. Such payments will accumulate on a tax deferred basis.

Accumulation Unit Value (AUV): An annuity's sub-account price per share during the accumulation phase. It's the net asset value after income and capital gains have been included and sub-account management expenses have been subtracted.

Accumulation Value: The amount of money, consisting of premiums paid, any expense charge deductions and interest credited, that accumulates under an annuity contract during the accumulation phase.

Active fund management style: Fund manager actively analyzes and trades in securities that meet the overall objective of the fund. As its name implies, an active fund management style is more aggressive than passive fund management style.

After-tax: The effective cost of, or return from, an investment, after the tax liability or credit has been taken into account.

Aggressive growth fund: A mutual fund whose primary investment objective is substantial capital gains, as opposed to current dividend income, and usually at above-average risk.

Annual Annuity Contract Fee: Covers the cost of administering an annuity contract.

Annual Insurance Fee: This covers mortality and expense (M & E) risk charges and other administrative expenses. It also provides for a guaranteed death benefit and for lifetime guaranteed income payouts.

Annual Payment Annuity: An annuity that was purchased by the payment of annual premiums for a specified period of time.

Annual Policy Fee: This covers the costs of maintaining and administering an account during the accumulation phase. It is often waived, however, when an account's value reaches a certain level (which is stated in the contract).

Annual Sub-Account Fee: A fee deducted for fund operating costs, management fees, and other asset-based costs incurred by the fund. This charge is assessed at the sub-account level and is not deducted from policy values.

Annuitant: The person(s) who receives the income from an annuity contract. Usually the owner of the contract or his or her spouse.

Annuitization: The conversion of the account balance of a deferred annuity contract to income payments.

Annuitize: To begin a series of payments from an annuity. When someone who has been investing in an annuity retires, the built-up capital is annuitized and a payout schedule is selected according to need. The insurance company that sold the annuity then pays a fixed-dollar amount for an extended period of time, often the rest of the policyholder's life.

Annuity: Form of contract sold by life insurance companies that guarantees a fixed or variable payment to the annuitant at some time in the future, usually retirement. Annuities are either immediate or deferred. Immediate annuities are single-premium contracts that begin paying installments immediately. For example, an immediate monthly annuity would begin payments to the annuitant one month after the premium was paid and the contract issued. A deferred annuity is one in which payments to the annuitant are delayed to a specified future date, usually called the annuity date. Prior to the annuity date, during the accumulation phase of the contract, the cash values of the annuity accumulate tax-deferred, with specific contractual guarantees and at competitive interest rates. During the payout phase, a fixed annuity will ultimately pay out the accumulated value in regular installments varying only with the payout method selected. In a variable annuity, the cash accumulations reflect the performance of an underlying portfolio of investments such as stocks and bonds. While these investments can provide a hedge against inflation and an increased opportunity for growth, there is also the risk that investment performance will be poor and that an annuity's value will decrease or be lost. Unit values and variable annuity payments will depend on the value of the underlying investments.

Annuity Administrative Charges: Cover the cost of customer services for owners of variable annuities.

Annuity Beneficiary: In certain types of annuities, a person who receives annuity contract payments if the annuity owner or annuitant dies while payments are still due.

Annuity Certain: An annuity that pays income for a fixed number of years regardless of whether the insured lives or dies. If it pays for life after the certain period, it is called an "annuity certain and for life thereafter."

Annuity Contract: An agreement similar to an insurance policy for other insurance products such as auto insurance.

Annuity Contract Owner: The person or entity that purchases an annuity and has all rights to the contract. Usually, but not always, the annuitant (the person who receives income from the contract).

Annuity Death Benefits: The guarantee that if an annuity contract owner dies before annuitization (the switchover from the savings to the payment phase), the beneficiary will receive the value of the annuity that is due.

Annuity Due: An annuity under which the benefits are paid at the beginning of the benefit period rather than at the end.

Annuity Insurance Charges: Covers administrative and mortality and expense risk costs.

Annuity Investment Management Fee: The fee paid for the management of variable annuity invested assets.

Annuity Issuer: The insurance company that issues the annuity.

Annuity Option: A method of liquidating and distributing an annuity's principal and interest so that it lasts for the lifetime of the annuitant.

Annuity Period: The period of time, usually at retirement, during which the annuitant begins to receive annuity payments or benefits from the insurance company.

Annuity Prospectus: A legal document providing detailed information about variable annuity contracts. Must be offered to each prospective buyer.

Annuity Purchase Rate: The cost of an annuity based on such factors as the age and gender of the contract owner.

Annuity with Period Certain: An annuity that pays throughout the life of the insured, but also guarantees to pay income for a specific number of years regardless of whether the insured lives or dies. If the insured is living at the end of the time specified in the policy, benefits continue beyond the guaranteed period until the death of the insured.

Appreciation: An increase in the value of a property, such as the market value of a stock. For real estate, it is often expressed as a percentage increase per year.

Asset: Property that a person or business owns which has commercial or exchange value. Personal assets may be classified as financial (cash, gold, savings, stocks) or non-financial (real estate, automobiles, furniture). Business assets may be classified as current (convertible into cash within one year) or long-term (used in the production of income and not readily convertible into cash).

Asset allocation: A method of portfolio management that allows investors to determine an appropriate portfolio mix to produce the maximum reward given the level of risk they are willing to accept. It involves assigning a percentage weight to various asset classes – in combination they are called a portfolio. 

Asset category: A broad group of assets that corresponds to a traditional investment objective -- such as growth, income or stability. Stocks represent the asset category for growth, bonds for income, and cash equivalents for stability.

Asset class: A group of assets that is similar in type and investment objective, for example, large company stocks or international government bonds.

Asset Management Fee: Fees charged by the investment advisor to manage the assets in a plan.

Assumed Interest Rate (AIR): An assumed value which is assigned to the annuitant's account during the annuity period. It is an estimated return for the separate account. Monthly annuity payments are based on the AIR in relation to the actual rate of return experienced by the separate account of a variable annuity.

Average annual return: See "Historical mean return."

Average recovery time: How long it will take, on average, to recover from an average statistical loss.

B-Share Variable Annuity: A form of variable annuity contract with no initial sales charge, but if the contract is canceled, the holder pays deferred sales charges (usually from 5 to 7 percent the first year, declining to zero after from five to seven years). This is the most common form of annuity contract.

Back-end load fund: An open- or closed-end investment company that charges a fee upon the redemption or sale of its fund shares. Typically, loads are reduced based on the value of the shares and/or the passage of time. Are also referred to as Class B shares. 

Balanced mutual fund: A mutual fund that purchases common stock, preferred stock and bonds. Such funds tend to be less volatile than all-equity funds, outperforming them in a declining market, but underperforming them in a rising market.

Basic medical insurance: Insurance that provides coverage for normal hospital expenditures, surgical expenses and other miscellaneous expenses. Only expenses that are incurred while the insured is in the hospital are covered.

Beneficiary: A person designated to receive the income or other benefits from a will, insurance policy, annuity contract, trust, etc.

Beta coefficient: Measure of a stock's relative volatility. The beta is the covariance of a stock in relation to the rest of the stock market. The Standard & Poor's 500 Stock Index has a beta coefficient of one. Any stock with a higher beta is more volatile than the market, and any with a lower beta can be expected to rise and fall more slowly than the market.

Blue chip stock: The common or preferred stock of well-known, major corporations that is traded on a national stock exchange. Blue chip status is derived from long periods of earnings growth, dividend payments and financial stability.

Bond: A certificate of debt or negotiable promissory note of a corporation or public body that promises to repay on a maturity date some years in the future and to pay periodic interest until then.

Bond fund: A fund that holds corporate, municipal or U.S. Treasury bonds, or a combination of those in the attempt to earn as much income as possible while maintaining a high degree of security.

Book value per share: The value of a single share of stock, calculated by dividing a company's net assets (i.e., assets minus liabilities) by the total number of shares issued.

Brokerage firm: A company in the business of handling orders to buy and sell securities and commodities for a commission or fee.

Budget: A tool for planning short-term income and expenditures in order to achieve long-term financial goals. The budget shows income and expenses within a given period of time.

Buy and hold strategy: Contributions and assets are allocated to various types of investments and held for extended periods of time. This is the opposite of "market timing."

C-Share Variable Annuity: A form of variable annuity contract where the contract holder pays no sales commissions up front or surrender charges. Owners can claim full liquidity at any time.

Capital: Wealth in the form of money or property, which is usually available for investment.

Capital appreciation: An increase in the market value of an investment.

Capital asset: Financial assets such as stocks or bonds.

Capital Gain/Loss: The difference between the sale price of a capital asset — such as a mutual fund, stock or bond — and the original cost of the asset.

Capital Gains (In a mutual fund): Payments made to mutual fund shareholders that come from the profits a fund makes on the sale of its securities. Such payments may be automatically reinvested in the shareholders’ accounts.

Capital value: The worth of capital assets.

Cash equivalent: A short-term investment with a high degree of safety that can be converted to cash quickly (i.e., T-bills and money market funds).

Cash flow statement: A listing of the sources and uses of the cash receipts and cash outlays of a person or business.

Cash Refund Annuity: A form of annuity contract which provides that if at the death of the annuitant installments paid out have not totaled the amount of the premium paid for the annuity, the difference will be paid to a designated beneficiary in a lump sum.

Catch-up Contribution: An additional amount over basic IRC limits that participants age 50 or older may contribute to eligible retirement plans.

Certificate Owner: The person or entity that purchases the annuity.

Certificate of deposit (CD): A receipt issued by a bank for a cash deposit for a specified period of time at a fixed rate of interest (determined by the marketplace). Upon maturity, the bank pays the depositor the principal plus all accumulated interest. Negotiable CDs may be transferred before maturity; non-negotiable CDs are not readily transferable, and early withdrawals are subject to interest penalties.

Charitable gifts: Donations of cash, tangible or intangible property to eligible recipients, usually tax-exempt organizations.

Closed-end fund: A fund that is operated with a limited number of shares outstanding. A closed-end fund starts with a set number of shares, often listed on an exchange, where they are traded like any other stock.

Coinsurance: For most major medical insurance policies, the portion of medical expense the covered person must bear once the deductible has been satisfied, commonly 20% to 25%.

Collective trust: An investment option that is established for the collective investment of institutional investors (i.e., qualified pension plans).

Commercial paper: Short-term obligations with maturities ranging from two to 270 days issued by banks and corporations to investors with temporarily idle cash. Such instruments are unsecured and usually discounted, although some are interest-bearing.

Commodity futures: A contract providing for the delivery of a tangible asset at a specified future date and price. The commodities traded in futures markets include cocoa, copper, corn, eggs, frozen concentrated orange juice, lumber, oats, wheat and soybeans. Commodities futures are traded to profit from price changes or provide cash flow to producers and shippers.

Common stock: A security representing ownership of a corporation's assets. The right of common stock to dividends and assets is subordinate to the rights of bonds, preferred stocks and other creditors. Generally, shares of common stock carry voting rights.

Common stock fund: A fund where the portfolio consists primarily of common stocks. At times, such a fund may take a defensive position in cash, bonds and other senior securities.

Commodities: Generic term for anything bought or sold or any article of commerce that is traded on national exchanges.

Community property: Property owned in common by a husband and wife as a kind of marital partnership. Defined by statute in the various states in which community property is recognized.

Compounding: The accrual of interest earned on an investment and its reinvested earnings.

Comprehensive major medical insurance: A medical insurance plan that combines basic hospital, surgical and medical expense coverage with traditional major medical protection to form a single policy.

Consequential losses: Indirect losses (i.e., those that occur in connection with or as a result of the direct or main loss). Some policies cover only direct losses, others cover both direct losses and indirect losses.

Consumer Price Index (CPI): Measure of changes in the cost of consumer goods (housing, food, transportation, medical care, entertainment, etc.). The U.S. Department of Labor calculates the index each month from the cost of items in urban areas across the nation.

Contingent Annuity: An annuity in which payment of benefits is contingent upon the occurrence of an uncertain event, such as death of a person not an annuitant. For example, an annuity might be purchased to pay benefits to a wife in the event of the death of her husband.

Contingent Annuitant: A person who will receive annuity payments in case the first annuitant dies before annuity payments begin.

Contingent Deferred Sales Charge: Also called “back-end load” or “redemption fee.” The sales charge or commission paid when selling or taking money out of an investment such as a mutual fund or annuity.

Contribution Allocation/Mix Change: Changing how the participant’s future payroll deductions are divided among stocks, bonds and short-term reserves. This action affects only future payroll deductions. It does not affect money already deposited in the participant’s account.

Convertible securities: Securities carrying the right (either unqualified or understated conditions) to exchange the security for other securities of the issuer. Most frequently applies to preferred stocks or bonds carrying the right to exchange for given amounts of common stock.

Corporate bond: A debt security issued by a corporation at a given rate of interest for a specified term, usually in units with a par value of $1,000.

Correlation coefficient: A number that expresses the amount of similarity or dissimilarity in behavior between two asset classes.

Credit life insurance: A type of life insurance sold in conjunction with installment loans that decreases at the same rate as the balance on the loan. This type of policy is often required by a lender to be taken out by a borrower to cover a substantial loan or large installment purchase.

Current yield: Annual return on a bond, computed by dividing the annual coupon rate by the market price. Current yield equals the coupon rate for bonds purchased at par and exceeds it for bonds purchased at discount.