Financial Terms
Single-premium deferred annuity

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Definition of Single-premium deferred annuity

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Single-premium deferred annuity

An insurance policy bought by the sponsor of a pension plan for a single
premium. In return, the insurance company agrees to make lifelong payments to the employee (the
policyholder) when that employee retires.

Related Terms:

ADF (annuity discount factor)

the present value of a finite stream of cash flows for every beginning $1 of cash flow.

Annual Premium

Yearly amount payable by a client for a policy or component.


A regular periodic payment made by an insurance company to a policyholder for a specified period
of time.


A series of payments or deposits of equal size spaced evenly over
a specified period of time


A series of payments over a period of time. The payments are usually
in equal amounts and usually at regular intervals such as quarterly,
semi-annually, or annually.


Equally spaced level stream of cash flows.


A contract which provides an income for a specified period of time, such as a certain number of years or for life. An annuity is like a life insurance policy in reverse. The purchaser gives the life insurance company a lump sum of money and the life insurance company pays the purchaser a regular income, usually monthly.

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Periodic payments made to an individual under the terms of the policy.

Annuity due

An annuity with n payments, wherein the first payment is made at time t = 0 and the last
payment is made at time t = n - 1.

Annuity Due

annuity where the payments are to be made at the beginning of
each period

annuity due

a series of equal cash flows being received or paid at the beginning of a period

annuity due

Level stream of cash flows starting immediately.

Annuity factor

Present value of $1 paid for each of t periods.

annuity factor

Present value of an annuity of $1 per period.

Annuity in arrears

An annuity with a first payment on full period hence, rather than immediately.

Annuity Period

The time between each payment under an annuity.

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Automatic Waiver of Premium

A benefit that automatically forfeits premium payments.

Back To Back Annuity

This term refers to the simultaneous issue of a life annuity with a non-guaranteed period and a guaranteed life insurance policy [usually whole life or term to 100]. The face value of the life insurance would be the same amount that was used to purchase the annuity. This combination of life annuity providing the highest payout of all types of annuities, along with a guaranteed life insurance policy allowed an uninsurable person to convert his/her RRSP into the best choice of annuity and guarantee that upon his/her death, the full value of the annuity would be paid tax free through the life insurance policy to his family members. However, in the early 1990's, the Federal tax authorities put a stop to the issuing of standard life rates to rated or uninsurable applicants. Insuring a life annuity in this manner is still an excellent way to provide guaranteed tax free funds to family members but the application for the annuity and the application for the life insurance are separate transactions and today, most likely conducted through two different insurance companies so that there is no suspicion of preferential treatment given to the life insurance application.

Contingent deferred sales charge (CDSC)

The formal name for the load of a back-end load fund.

control premium

the additional value inherent in the control interest as contrasted to a minority interest, which reflects its power of control

Conversion premium

The percentage by which the conversion price in a convertible security exceeds the
prevailing common stock price at the time the convertible security is issued.

Default premium

A differential in promised yield that compensates the investor for the risk inherent in
purchasing a corporate bond that entails some risk of default.

default premium

Difference in promised yields between a default-free bond and a riskier bond.


Tax-advantaged life insurance product. deferred annuities offer deferral of taxes with the
option of withdrawing one's funds in the form of life annuity.

Deferred Annuity

An annuity providing for income payments to commence at a specified future time.

Deferred call

A provision that prohibits the company from calling the bond before a certain date. During this
period the bond is said to be call protected.

deferred compensation

pay related to current performance
that will be received at a later time, typically after retirement

Deferred equity

A common term for convertible bonds because of their equity component and the
expectation that the bond will ultimately be converted into shares of common stock.

Deferred futures

The most distant months of a futures contract. A bond that sells at a discount and does not
pay interest for an initial period, typically from three to seven years. Compare step-up bond and payment-inkind

Deferred Income Tax Expense

That portion of the total income tax provision that is the result
of current-period originations and reversals of temporary differences.

Deferred nominal life annuity

A monthly fixed-dollar payment beginning at retirement age. It is nominal
because the payment is fixed in dollar amount at any particular time, up to and including retirement.

Deferred Tax Asset

Future tax benefit that results from (1) the origination of a temporary difference
that causes pretax book income to be less than taxable income or (2) a loss, credit, or other
carryforward. Future tax benefits are realized on the reversal of deductible temporary differences
or the offsetting of a loss carryforward against taxable income or a tax-credit carryforward against
the current tax provision.

Deferred Tax Liability

Future tax obligation that results from the origination of a temporary
difference that causes pretax book income to exceed taxable income.

Deferred taxes

A non-cash expense that provides a source of free cash flow. Amount allocated during the
period to cover tax liabilities that have not yet been paid.

EBDDT - Earnings before depreciation and deferred taxes

This measure is used principally by
firms in the real estate industry, with the exception of real estate investment trusts, which typically
do not pay taxes.

Equivalent annual annuity

The equivalent amount per year for some number of years that has a present
value equal to a given amount.

Forward premium

A currency trades at a forward premium when its forward price is higher than its spot price.

Guaranteed Interest Annuity (GIA)

Interest bearing investment with fixed rate and term.

Individual Retirement Annuity

An IRA comprised of an annuity that is managed
through and paid out by a life insurance company.

Level Premium

A premium that remains unchanged throughout the life of a policy

Level Premium Life Insurance

This is a type of insurance for which the cost is distributed evenly over the premium payment period. The premium remains the same from year to year and is more than actual cost of protection in the earlier years of the policy and less than the actual cost of protection in the later years. The excess paid in the early years builds up a reserve to cover the higher cost in the later years.

Liquidity premium

Forward rate minus expected future short-term interest rate.

market risk premium

Risk premium of market portfolio. Difference between market return and return on risk-free Treasury bills.

maturity premium

Extra average return from investing in longversus short-term Treasury securities.

Normal annuity form

The manner in which retirement benefits are paid out.

Option premium

The option price.

Ordinary Annuity

An annuity where the payments are made at the end of each

ordinary annuity

a series of equal cash flows being received
or paid at the end of a period


1) Amount paid for a bond above the par value.
2) The price of an option contract; also, in futures
trading, the amount the futures price exceeds the price of the spot commodity. Related: inverted market premium payback period. Also called break-even time, the time it takes to recover the premium per share of a
convertible security.


This is your payment for the cost of insurance. You may pay annually, semi-annually, quarterly or monthly. The least expensive method is annually. Using any of the other payment modes will cost you more money. For example, paying monthly will cost about 17% more. If you pay annually and terminate your coverage part way through the year, you may not receive a refund for the remaining months to the annual renewal date.
The cost of life insurance varies by age, sex, health, lifestyle, avocation and occupation. Generally speaking, the following is true at the time of applying for coverage; the older you are, the more will be the cost; of a male and female of the same age, the female will be considered 4 years younger; health problems will increase the cost of insurance and may result in rejection altogether; dangerous hobbies such as SCUBA diving, private flying, bungi jumping, parachuting, etc. may increase the cost of insurance and may result in rejection altogether; abuse of alcohol or drugs or a poor driving record will make getting coverage difficult.


Annual amount payable, by a client, for selected product or service.

Premium bond

A bond that is selling for more than its par value.

Premium (Credit Insurance)

Annual or monthly amounts payable, by a client, for a selected insurance coverage to insure debt obligations to their creditors are protected.

Premium Grant

A nonqualified stock option whose option price is set substantially
higher than the current fair market value at the grant date.

Premium Mode

Payment schedule of policy premiums, usually selected by the policy owner (monthly, quarterly, annually).

Premium Offset

After premiums have been paid for a number of years, further annual premiums may be paid by the current dividends and the surrender of some of the paid-up additions which have built up in the policy. In effect, the policy can begin to pay for itself. Whether a policy becomes eligible for premium offset, the date on which it becomes eligible and whether it remains eligible once premium offset begins, will all depend on how the dividend scale changes over the years. Since dividends are not guaranteed, premium offset cannot be guaranteed either.

RAMs (Reverse-annuity mortgages)

Mortgages in which the bank makes a loan for an amount equal to a
percentage of the appraisal value of the home. The loan is then paid to the homeowner in the form of an

Risk premium

The reward for holding the risky market portfolio rather than the risk-free asset. The spread
between Treasury and non-Treasury bonds of comparable maturity.

Risk Premium

The additional rate of return required on a risky project
(investment) when compared to a risk-free project (investment)

risk premium

Expected return in excess of risk-free return as compensation for risk.

Risk Premium

The difference between the yields of two bonds because of differences in their risk.

Risk Premium

The difference between the required rate of return on a riskless asset with the same expected life.

Risk premium approach

The most common approach for tactical asset allocation to determine the relative
valuation of asset classes based on expected returns.

Single country fund

A mutual fund that invests in individual countries outside the United States.

Single factor model

A model of security returns that acknowledges only one common factor.
See: factor model.

Single index model

A model of stock returns that decomposes influences on returns into a systematic factor,
as measured by the return on the broad market index, and firm specific factors.

Single-index model

Related: market model

Single-level bill of material

A list of all components used in a parent item.

Single-payment bond

A bond that will make only one payment of principal and interest.

Single sourcing

Using a single supplier as the only source of a part.

tax-deferred income

current compensation that is taxed at a future date

Tax-deferred retirement plans

Employer-sponsored and other plans that allow contributions and earnings to
be made and accumulate tax-free until they are paid out as benefits.

Tender offer premium

The premium offered above the current market price in a tender offer.

Term premiums

Excess of the yields to maturity on long-term bonds over those of short-term bonds.

Time premium

Also called time value, the amount by which the option price exceeds its intrinsic value. The
value of an option beyond its current exercise value representing the optionholder's control until expiration,
the risk of the underlying asset, and the riskless return.

Unearned Premium

premiums paid for coverage not yet provided.

Vanishing Premium

This term relates to participating whole life insurance and the use of the dividend to reduce or completely eliminate the need for future premiums. In the 1980's life insurance company's profits from investment were exceedingly high compared to historical experience. It became common for a salesperson to show new prospective clients how quickly his or her insurance company's dividends would cover the future cost of future premiums. In some cases more emphasis was put on the value of future dividends than on the fact that future dividends were not guaranteed and could only be projected based on current earnings. Many life insurance buyers have since learned that the dividends they expected in the 80's no longer exist in the 90's and they are continuing to dig into their pockets to pay insurance premiums.

Variable Annuity

A form of annuity policy under which the amount of each benefit is not guaranteed or specified. The amounts fluctuate according to the earnings of a separate investment account.

Waiver of Premium

This is an option available to the applicant for life insurance which sets certain conditions under which an insurance policy will be kept in full force by the insurance company without the payment of premiums. Very specifically, a life insured would have to become totally disabled through injury or illness for a period of six months before the benefit kicks in. When it does, the insurance company retroactively pays premiums from the beginning of the disability until the time the insured is able to perform some form of regular activity. 'Totally disabled' is highlited here, because that is what is required to receive this benefit.

Waiver of Premium

A benefit that allows CLA to pay premiums on behalf of the insured.







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