Plain English
The words, explained without the sales pitch.
This industry has a habit of using ten words where three would do. Here is what the common ones actually mean. Tap any word to open it.
Words about retirement income
Annuity
A contract with an insurance company. You hand over a sum of money, and in return the company pays you back on an agreed schedule — often monthly, often for as long as you live.
Fixed annuity
An annuity that pays a guaranteed rate of interest. Predictable. It will not shoot up when markets do, and it will not fall when they do not.
Fixed indexed annuity
The interest it credits is tied to a market index, but with a floor so you do not lose money in a down year, and a cap that limits the gain in a good one. Safety in exchange for some of the upside.
Immediate annuity
You pay once and the payments start almost straight away. Often used to cover fixed monthly bills for life.
Surrender period
The number of years during which taking your money out early costs you a fee. Ask about this before you sign anything. Always.
RMD (Required Minimum Distribution)
Once you reach a certain age, the IRS requires you to withdraw a minimum amount from most retirement accounts each year, whether you need it or not.
Rollover
Moving retirement money from one account to another — for example from a 401(k) at an old employer into an IRA — without triggering tax, provided it is done correctly.
Words about Medicare
Part A
Hospital coverage. Inpatient stays, skilled nursing, hospice. Most people have already paid for it through payroll taxes, so it usually has no monthly premium.
Part B
Medical coverage. Doctor visits, outpatient care, tests, equipment. It has a monthly premium.
Part C (Medicare Advantage)
A private plan that replaces Original Medicare and bundles everything together, usually including drug coverage. Lower premiums, but a network of doctors you have to stay inside.
Part D
Prescription drug coverage, sold separately by private companies.
Medigap (Medicare Supplement)
A private policy that pays the gaps Original Medicare leaves — the deductibles and the twenty percent. You keep any doctor who accepts Medicare. Higher premium, fewer surprises.
Initial Enrolment Period
The seven-month window around your 65th birthday when you can sign up without penalty. Missing it can cost you a permanently higher premium.
Words about life insurance
Term life insurance
Coverage for a set number of years — ten, twenty, thirty. If you die during the term, your family is paid. If you outlive it, the policy simply ends. It is the least expensive way to buy a large amount of protection.
Whole life insurance
Coverage that lasts your entire life and builds a cash value you can borrow against. Costs considerably more than term for the same payout.
Premium
What you pay for the policy, usually monthly or annually.
Death benefit
The amount the insurance company pays your beneficiaries when you die.
Beneficiary
The person or people who receive the money. Worth checking yours today — old policies often still name an ex-spouse.
Underwriting
The insurance company reviewing your health and history to decide whether to insure you and at what price. Usually a questionnaire, sometimes a brief medical exam.
Words about advice itself
Fiduciary
Someone legally required to act in your best interest, not merely to recommend something "suitable". Worth asking anyone who advises you whether they are one.
Commission
How most insurance agents are paid — by the insurance company, out of the product, rather than by you directly. You should always feel free to ask how the person in front of you gets paid.
Broker
An agent who can offer products from many insurance companies rather than only one. It means the comparison you are shown is a real comparison.
Still stuck on a word?
Send it to me. There is no such thing as a question that is too basic here — the whole point of 523 is that somebody explains it properly.
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