Question of the Week

In the separate account of a variable annuity, which of the following characteristics apply to annuity units, but not accumulation units?
I. Fixed number of units
II. Actuarial factors have been applied
III. Variable number of units
IV. Loss of control by investor

a) III, IV
b) I, II, IV
c) I, II
d) II, III, IV


Answer:

The correct answer is b.

When the holder of a variable annuity contract annuitizes the contract, he/she is asking that the insurance company pay him/her for life. The company applies the actuarial factors for life expectancy and payout option to the value of the account and computes a fixed number of units to be cashed in each month. At the point of annuitization, the annuitant relinquishes all control of the account.