Defined terms for the annuity market and lifetime income landscape.
Option budget is the amount per dollar of contract value that an insurance carrier allocates each year to purchase the index options that fund a fixed indexed annuity's index-linked crediting, set as a function of the carrier's general account investment yield net of the spread the carrier retains.
Ordinary income treatment is the federal tax rule that annuity earnings are taxed at ordinary income rates when distributed, rather than at the lower capital gains rates that apply to long-term appreciation on taxable investments.
An out-of-plan lifetime income option is a lifetime income arrangement a participant obtains after rolling defined contribution plan assets into an individual retirement account and purchasing an annuity or similar structure through the retail market.
Overconfidence is the tendency for individuals to hold beliefs about their own knowledge, skill, or judgment that are more certain or more favorable than the underlying evidence supports.
The owner versus annuitant distinction is the structural separation in an annuity contract between the contract owner — the person with legal rights to control the contract — and the annuitant, the person whose life is the measuring life for any life-contingent payments under the contract.
