DEFINITION of 'Investment In The Contract'

As this term applies to annuities, the principal amount that the contract owner has invested in the contract. The investment in the contract can be made as a series of payments or in a single lump sum. This term generally applies to fixed, indexed and variable annuities alike.

BREAKING DOWN 'Investment In The Contract'

Any amount of money withdrawn from an annuity that is in excess of the investment in the contract is considered a taxable distribution. Investors who annuitize their contracts will see a portion of each payment they receive classified as a return of principal or investment in the contract. This portion of each payment is considered a tax-free return of principal.

RELATED TERMS
  1. Annuity

    A financial product that pays out a fixed stream of payments ...
  2. Annuity Consideration

    The money that an individual pays to an insurance company in ...
  3. Deferred Annuity

    A type of annuity contract that delays payments of income, installments ...
  4. Fixed Annuity

    An insurance contract in which the insurance company makes fixed ...
  5. Annuity Contract

    The written agreement between an insurance company and a customer ...
  6. Annual Crediting Cap

    The maximum rate of index growth that an annuity will be credited ...
Related Articles
  1. Retirement

    How Are Variable Annuities Taxed?

    Before investing in a variable annuity, discuss your personal financial picture with a knowledgeable financial advisor.
  2. Financial Advisor

    Advising FAs: Explaining Annuities to a Client

    Conceptually speaking, annuities can be thought of as a reverse form of life insurance.
  3. Financial Advisor

    Build Your Own Annuity

    Here are some tips on the different types of annuities to have in your portfolio.
  4. Financial Advisor

    Annuities and Baby Boomers: The Pros and Cons

    The pros and cons of annuities that Baby Boomers seeking retirement income need to know.
  5. Retirement

    Buying Annuities in a Low Interest Rate World

    Learn if buying an annuity makes sense in a low interest rate environment. Also discover the different types of annuities and how interest rates affect them.
  6. Financial Advisor

    Maximize the Tax Benefit from Your Annuity

    Understand how nonqualified annuities are taxed during your lifetime, and how they are taxed when passed on to your beneficiaries.
  7. Financial Advisor

    How to Avoid Overpriced Annuities

    The key to not paying excessive fees for annuities is understanding how they work. Here's what you need to know.
  8. Financial Advisor

    Variable Annuities: The Pros and Cons

    Variable annuities are one of the most complicated financial instruments. Here is an in depth look at their pros and cons.
  9. Retirement

    How a Variable Annuity Works After Retirement

    These investments can provide extra income after you retire. Here’s a guide to when and how you will receive the payout.
  10. Financial Advisor

    When Does It Make Sense to Buy an Annuity?

    Annuities are not always appropriate for every situation. Here is when it makes sense to purchase them.
RELATED FAQS
  1. What is an annuity?

    An annuity is a contract between you and an insurance company in which you make a lump sum payment or series of payments ... Read Answer >>
  2. What is the difference between a fixed and variable annuity?

    Understand the difference between fixed, variable and indexed annuities, and read a brief summary of their respective risks ... Read Answer >>
  3. Do variable annuities guarantee returns of principal?

    Learn why variable annuities do not guarantee returns of principal, but how investors can purchase specific riders to protect ... Read Answer >>
  4. How are variable annuities taxed at death?

    Find out how variable annuities are taxed after the death of an annuitant, including an explanation of the various payment ... Read Answer >>
Hot Definitions
  1. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  3. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  4. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  5. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  6. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
Trading Center