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- Apr 15, 2024
Important Terms to Know About Registered Index-Linked Annuities
Learning some of the common words used to talk about RILAs can help you better understand the investment option.
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Updated: July 22, 2024
- What are other names for a registered index-linked annuity (RILA)?
- How do financial services companies refer to the various features of a RILA?
- What are the most important features of a RILA?
This list of annuity terms can help you better navigate the world of registered index-linked annuities (RILAs). Industry sources and other financial services companies may use different terms to describe the same benefits or features. Even the name of the annuity type has variations. Some companies use registered index-linked annuity, while others use buffered, index-linked, or structured annuity. This dictionary can help you better understand RILAs as well as many of the key words and phrases you may see as you discuss with your financial professional whether this type of annuity is suitable for a portion of your portfolio.
A – C
Account Value – The total of the Fixed Account value and the value of the index strategy(ies) under the registered index-linked annuity contract at the beginning or end of the term.
Allocation Option – An index option, Fixed Account, or any other option available to which the account value may be allocated.
Averaging (daily, monthly) – An index crediting method that uses the average value of an index during a period, typically daily or monthly, to determine interest credits. (See also: Crediting Strategy)
Buffer – Limits the amount of any negative performance but leaves the contract owner to assume any remaining negative performance that exceeds the buffer at the end of the term. For example, if a registered index-linked annuity has a 10% buffer and the index value is down 15% at the end of the term, the account value would decrease by only 5%. (See also: Downside Protection, Shield Rate)
Buffered Annuity – Also known as an index-linked annuity, registered index-linked annuity, or structured annuity; an annuity that tracks a chosen index or indices for a selected term and typically provides a maximum rate of return in exchange for the financial services company absorbing a percentage of loss if the index value at the end of the term is lower than the index value at the beginning of the term. (See also: Buffer)
Cap Rate – Also known as a ceiling; the maximum percentage gain from the tracked index that the issuing insurance company credits to the contract owner at the end of the selected term. For example, if the Cap Rate is 200% and the index value is up 150% at the end of the term, the account value would increase by 150%. But if the index value is up 250% at the end of the term, the account value would increase by 200%.
Ceiling – The maximum percentage gain from the tracked index that the financial services company credits to the contract owner at the end of the crediting period. (See also: Cap Rate)
Crediting Period – Also known as the term or term length; the amount of time that the crediting strategy is in effect for a registered index-linked annuity. Typical crediting periods are 1, 2, 3, and 6 years. The crediting period, downside protection, and chosen index impact the crediting strategy offered as part of the annuity. (See also: Segment)
Crediting Strategy – Also known as the rate crediting type; the method used to determine how much interest the contract owner will receive at the end of the term. Cap Rate, Step Rate, and Participation Rate are examples of crediting strategies. In a registered index-linked annuity, the crediting strategy typically measures the change in value of the tracked index from the beginning of the term to the end of the term.
D – G
Daily Averaging – A method of interest crediting in which the value of the index at the beginning of the annual term is compared with a daily average of that index over the length of the term. (See also: Averaging)
Death Benefit Amount – The amount paid to the designated beneficiaries when the contract owner passes away. Typically the death benefit value will be the account value or the greater of the account value and the purchase payment (reduced by any withdrawals). The payout method may depend on the contract owner’s age at the time the annuity was issued.
Downside Protection – Offers the contract owner some confidence during a market downturn. Buffers and floors are common downside protection options. For example, if a registered index-linked annuity has a 10% buffer and the index value is down 15% at the end of the term, the account value would decrease by only 5%. If a RILA has a 10% buffer and the index value is down 5% at the end of the term, the account wouldn’t lose any value because the financial services company would absorb the loss. If a RILA has a 10% floor and the index value is down 25% at the end of the term, the account value would decrease by 10%. In that same RILA, if the index value is down 5% at the end of the term, the account value would decrease by 5%. (See also: Buffer, Floor)
Dual Directional Index Strategy – A crediting strategy that may offer some upside potential if the performance of the tracked index at the end of the term is negative but within the buffer. If the index has a negative return that is within or equal to the buffer, the contract owner would receive a positive index credit equal to the percentage of the negative return at the end of the term. For example, if the registered index-linked annuity has a buffer of 10% and the index return is down 5% at the end of the term, the contract owner would receive a positive index credit of 5%. If the index return is positive at the end of the term, the contract owner would receive a positive return up to the Cap Rate. If the index return is negative at the end of the term and exceeds the buffer, the account value would be reduced by any loss that exceeds the buffer. For instance, if the index return declines by 12% with a buffer of 10%, the account would decrease by 2%. (See also: Step Rate Edge)
Fixed Account – The contract owner may choose to allocate a portion of their premium to a Fixed Account, if available, to ensure consistent growth. This portion of the annuity would pay a fixed rate rather than tracking the performance of an index.1
Flexible Premium – An option provided by some insurance companies that allows the investor to make additional purchase payments, with the account value of the annuity changing as additional contributions are made.
Floor – A maximum percentage of loss that the contract owner is willing to take. For example, if a registered index-linked annuity has a 10% floor and the index value is down 25% at the end of the term, the account value would decrease by 10%. In that same RILA, if the index value is down 5% at the end of the term, the account value would decrease by 5%. (See also: Downside Protection)
Growth Potential – Also known as upside potential; the opportunity for growth at the end of the term that a registered index-linked annuity provides. Because RILAs typically have a higher Cap Rate, they generally offer more growth opportunity than fixed or fixed indexed annuities. However, an increased amount of growth potential often comes in exchange for some downside protection. For instance, fixed and fixed indexed annuities are guaranteed against loss, while RILAs may only prevent a level of loss based on the buffer or floor.
H – M
Index-Linked Annuity – Also known as a buffered annuity, registered index-linked annuity, or structured annuity; an annuity that tracks a chosen index or indices and typically provides a maximum rate of return in exchange for the financial services company absorbing a percentage of loss if the index value at the end of the term is lower than the index value at the beginning of the term.
Index Option – May be used to describe the combination of factors within a registered index-linked annuity, including the index, level of protection, crediting strategy, and term. (See also: Shield Option)
Index Performance – Also known as index value; the published closing value of an index on any given business day. Indices available with registered index-linked annuities may include the S&P 500® Index, Russell 2000® Index, MSCI EAFE Index, Nasdaq-100® Index, and others.A,B,C,D
Index Strategy – A registered index-linked allocation option that provides a return based on the performance of the tracked index, level of protection, crediting strategy, and chosen term. (See also: Index Option, Shield Option)
Index Tracking – Rather than investing directly in an index, a registered index-linked annuity tracks the performance of the index and credits or reduces the account value accordingly at the end of the term based on the chosen index strategy.
Index Value – Also known as index performance; the published closing value of an index on any given business day. Indices available with registered index-linked annuities may include the S&P 500® Index, Russell 2000® Index, MSCI EAFE Index, Nasdaq-100® Index, and others.A,B,C,D
Interim Value – The value of each index strategy calculated any time between the term start date and term end date. The Interim Value is used to determine the account value if the contract owner makes a withdrawal, surrenders the account, chooses to annuitize, or passes away before the end of the term. (See also: Market Value Adjustment)
Lifetime Income Rider – An optional benefit available with some registered index-linked annuities that can provide guaranteed lifetime income. The contract owner can receive a set amount of income for life that can be taken systematically. Some RILAs may offer an income option that maximizes lifetime income in exchange for a reduced crediting strategy rate and/or fee.2
Market Value Adjustment (MVA) – A calculation that may be applied to an amount of money either withdrawn or annuitized. An MVA will apply for a designated length of time or set number of years. (See also: Interim Value)
N – R
New Contract Rate – The rate assigned to an individual index strategy at the time of purchase; for example, a 6-year registered index-linked annuity tracking the S&P 500 Index with a 200% Cap Rate and 25% buffer. These rates are typically valid for the length of the term. (See also: Renewal Rate)
Participation Rate – The amount of index growth an investor may capture as part of the annuity. For example, if the Participation Rate is 75% and the index increases by 15%, the interest credit will be 75% of 15%, or 11.25%. (See also: Crediting Strategy)
Performance Lock – A feature that allows the contract owner to lock in the Interim Value of an index strategy on any business day between the term start date and the term end date (excluding the term start date and term end date). This means that even if the tracked index loses value for the remainder of the term, the investor’s ending value for the index strategy will be the locked Interim Value. Once the Performance Lock goes into effect, the contract owner may not experience any additional growth or loss.3
Performance Trigger – A crediting strategy in which the account value will be credited with a predetermined percentage of growth if the chosen index is flat or up at the end of the term. This method does not provide a positive credit if the index is down at the end of the term. (See also: Step Rate)
Point-to-Point Crediting – The most common crediting strategy in a registered index-linked annuity; this measures the change in value of the tracked index from the beginning of the term to the end of the term.
Protection Level – The amount of any negative index performance that is absorbed by the financial services company at the end of the term. For example, if a registered index-linked annuity has a 10% buffer and the index value is down 15% at the end of the term, the account value would decrease by only 5%. If a RILA has a 10% floor and the index value is down 15% at the end of the term, the account value would decrease by 10%. (See also: Buffer, Floor)
Purchase Payment – The amount of initial investment in a registered index-linked annuity. With a single premium, the purchase is funded by one payment. With a flexible premium, value may be added to the annuity over time through additional premium payments. (See also: Flexible Premium)
Rate Crediting Type – Also known as the crediting strategy; the method used to determine how much interest the contract owner will receive. Cap Rate, Step Rate, and Participation Rate are examples of rate crediting types. In a registered index-linked annuity, the rate crediting type typically measures the change in value of the tracked index from the beginning of the term to the end of the term.
Reallocation – When the term ends, the contract owner can distribute their funds utilizing different options. If Performance Lock is elected, the account may have an inter-term reallocation, allowing the contract owner to put that money into a new term rather than waiting until the end of the existing term.
Registered Index-Linked Annuity (RILA) – Also known as a buffered annuity, index-linked annuity, or structured annuity; an annuity that tracks a chosen index or indices and typically provides a maximum rate of return in exchange for the financial services company absorbing a percentage of loss if the index value at the end of the term is lower than the index value at the beginning of the term.
Renewal Rate – The rate assigned to an individual index strategy at the time of renewal. For example, a new contract rate for a 6-year term tracking the S&P 500 Index with a 25% buffer may have a 200% Cap Rate, but the Cap Rate on a renewal could be higher, lower, or the same as newly issued contracts. (See also: New Contract Rate)
Rider – An option that may be available as part of an annuity for a separate fee. Common annuity riders have historically included lifetime income and/or an enhanced death benefit as well as other features.
S – Z
Segment – The length of time from the start to the end of the tracking period in which value is determined. (See also: Crediting Period, Term)
Shield Option – Specific to Brighthouse Financial; includes the term, index, level of protection (Shield Rate), and crediting strategy. (See also: Index Option)
Shield Rate – The level of protection (buffer) for a Brighthouse Financial registered index-linked annuity; the amount of any negative index performance that is absorbed by the company at the term end date. For example, a Shield Rate of 25% means Brighthouse Financial would provide a 25% buffer. If the negative index performance is more than the Shield Rate, the account value would be reduced by the difference. For instance, if the index value is down 40% at the end of the term, the account value would decrease by 15%. (See also: Buffer)
Step Rate – A rate crediting type (crediting strategy) offered on some Brighthouse Financial products that credits a predetermined percentage of growth if index performance is flat or up at the end of the term. For example, if the Shield Rate is 10%, the Step Rate is 6%, and the index performance is at or above 0% at the end of the term, the account value would be credited the 6% Step Rate. If the index value is down at the end of the term, the Shield Rate would go into effect to protect the investor from the first 10% of loss. (See also: Performance Trigger)
Step Rate Edge – A rate crediting type (crediting strategy) offered on some Brighthouse Financial products that credits a predetermined percentage of growth, called the Edge Rate, if index performance is greater than or equal to the Shield Rate at the end of the term. The Edge Rate also serves as a growth cap when the index value is positive at the end of the term. For example, if the Shield Rate is 10%, the Edge Rate is 7%, and the index is flat at the end of the term, the account value would be credited the 7% Edge Rate. However, if the index value is down 8%, the account value would still be credited the 7% Edge Rate because the index value decrease would be less than the Shield Rate. If the index value is up 12%, the account value would be credited the 7% Edge Rate. If the index value is down 12%, the account value would decrease by only 2% because of the 10% Shield Rate.
Structured Annuity – Also known as a buffered annuity, index-linked annuity, or registered index-linked annuity; an annuity that tracks a chosen index or indices and typically provides a maximum rate of return in exchange for the financial services company absorbing a percentage of loss if the index value at the end of the term is lower than the index value at the beginning of the term.
Tax-Deferred Growth – A feature of a registered index-linked annuity in which the value grows tax-free. Typically, the contract owner doesn’t have to pay taxes until money is withdrawn from the annuity. The benefit of tax-deferred growth is that there’s more money in the account with the potential to grow.
Term – Also known as the term length or crediting period; the amount of time that the crediting strategy is in effect for a registered index-linked annuity. Typical terms are 1, 2, 3, and 6 years. The term, downside protection, and chosen index impact the crediting strategy offered as part of the annuity. (See also: Segment)
Upside Potential – Also known as growth potential; the opportunity for growth at the end of the term that a registered index-linked annuity provides. Because RILAs typically have a higher Cap Rate, they generally offer more growth opportunity than fixed or fixed indexed annuities. However, an increased amount of upside potential often comes in exchange for some downside protection. For instance, fixed and fixed indexed annuities are guaranteed against loss, while RILAs may only prevent a level of loss based on the buffer or floor.
Withdrawal Charge – Also known as a contingent deferred surrender charge (CDSC) or surrender charge; a percentage charge applied to a withdrawal amount in excess of the Free Withdrawal Amount in a contract year. These charges decline over time and typically discontinue after the contract surrender period. Not all annuities have a withdrawal charge.
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A The S&P 500® is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and has been licensed for use by Brighthouse Financial, Inc. S&P®, S&P 500®, US 500, The 500, iBoxx®, iTraxx® and CDX® are trademarks of S&P Global, Inc. or its affiliates (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by Brighthouse Financial, Inc. Brighthouse Financial products are not sponsored, endorsed, sold, or promoted by SPDJI, Dow Jones, S&P, or their respective affiliates; and none of such parties make any representation regarding the advisability of investing in such products, nor do they have any liability for any errors, omissions, or interruptions of the S&P 500®.
B The Russell 2000® Index is a trademark of Russell Investments and has been licensed for use by affiliates of Brighthouse Financial, Inc. This annuity product is not sponsored, endorsed, sold, or promoted by Russell Investments, and Russell Investments makes no representation regarding the advisability of investing in this annuity product.
C This annuity product is not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such products or securities, or any index on which such products or securities are based. The annuity product prospectus contains a more detailed description of the limited relationship MSCI has with affiliates of Brighthouse Financial, Inc.
D Nasdaq®, Nasdaq-100®, Nasdaq-100 Index®, and NDX® are registered trademarks of Nasdaq, Inc. (which, with its affiliates, is referred to as the “Corporations”) and are licensed for use by Brighthouse Financial, Inc. Brighthouse Financial products have not been passed on by the Corporations as to their legality or suitability and are not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THESE PRODUCTS.
1 If the Fixed Account is not elected, there could be a substantial loss if the index declines more than the level of protection. Availability of the Fixed Account may vary by state.
2 Guaranteed lifetime income depends upon staying within the parameters of the rider.
3 Once Performance Lock is exercised, it is irrevocable for the remainder of the term. It is possible to lock the Interim Value when it is below the investment amount. If Performance Lock is exercised when the Interim Value is less than the investment amount, the contract owner will lock in any loss, which could be below the Shield Rate. The locked Interim Value could be less than if the contract owner chose not to exercise Performance Lock and waited for the Performance Rate adjustment to be applied on the term end date. The locked Interim Value will not fluctuate for the rest of the term, except for being reduced by withdrawals.
Buying an annuity to fund a qualified retirement plan or IRA should be done for the annuity’s features and benefits other than tax deferral. Tax deferral is generally a feature of a qualified retirement plan or IRA, so an annuity would not provide an additional tax deferral benefit. References throughout this material to tax advantages, such as tax deferral and tax-free transfers, are subject to this consideration. The product described in this material is not made available to employer-sponsored qualified retirement plans. For non-qualified annuities, tax deferral is not available to corporations and certain other entities.
This material is for general informational purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax, accounting, investment, or fiduciary advice. Brighthouse Financial and its affiliates did not consider any individual’s circumstances in preparing this information. Clients should confer with their tax, legal, and accounting professionals in addition to consulting with a financial professional.
Brighthouse Shield® Level II 6-Year Annuity, Brighthouse Shield® Level II 3-Year Annuity, and Brighthouse Shield® Level II Advisory Annuity are collectively referred to as “Shield® Level Annuities,” “Shield® Level II Annuities,” “Shield® Annuities,” or “Shield® II Annuities.” Brighthouse Shield Level Pay Plus® II Annuity and Brighthouse Shield Level Pay Plus® II Advisory Annuity are collectively referred to as “Shield Level Pay Plus® Annuities” or “Shield Level Pay Plus® II Annuities.”
Brighthouse Shield Level II Annuities and Brighthouse Shield Level Pay Plus II Annuities are long-term investments designed for retirement purposes. They have limitations, exclusions, charges, termination provisions, and terms for keeping them in force and are not guaranteed by the broker/dealer, insurance agency, underwriter, or any affiliates of those entities from which they were purchased. All representations and contract guarantees, including the death benefit and annuity payout rates, are subject to the claims-paying ability and financial strength of the issuing insurance company. Because the client agrees to absorb all losses beyond their chosen Shield Rate, there is a risk of substantial loss of principal. Please refer to “Risk Factors” in the contract prospectus for more details.
Shield® Level II Annuities and Shield Level Pay Plus® II Annuities are index-linked annuities issued by, and product guarantees are solely the responsibility of, Brighthouse Life Insurance Company, Charlotte, NC 28277, on Policy Form 5-213-1 (07/24) (“Brighthouse Financial”). These products are distributed by Brighthouse Securities, LLC (member FINRA). All are Brighthouse Financial affiliated companies. The contract prospectuses and contracts contain information about each contract’s features, risks, charges, expenses, exclusions, limitations, termination provisions, and terms for keeping the contract in force. Prospectuses and complete details about each contract are available from a financial professional and should be read carefully. Product availability and features may vary by state or firm. Shield Level Pay Plus Annuities are not available in New York.