What are premiums paid into a variable annuity credited as during the accumulation phase?

What are premiums paid into a variable annuity credited as during the accumulation phase?

• A. Accrual units
• B. Investment units
• C. Accumulation units
• D. Annuity units

Answer: (C)

During the accumulation phase of a variable annuity, the premiums paid are credited as accumulation units. This phase is characterized by the investor making contributions to the annuity, which are then converted into accumulation units based on the performance of the underlying investments. Each accumulation unit represents a fractional ownership of the investment portfolio. As the value of the underlying investments fluctuates, so too does the value of each accumulation unit, which allows the total value of the annuity to grow based on market performance. This contrasts with annuity units, which are used during the payout phase when the annuity begins to make periodic payments to the annuitant based on the accumulated value. Understanding the differing terminologies and phases of a variable annuity is crucial for effective financial planning and management.

During the accumulation phase of a variable annuity, the premiums paid are credited as accumulation units. This phase is characterized by the investor making contributions to the annuity, which are then converted into accumulation units based on the performance of the underlying investments. Each accumulation unit represents a fractional ownership of the investment portfolio.

As the value of the underlying investments fluctuates, so too does the value of each accumulation unit, which allows the total value of the annuity to grow based on market performance. This contrasts with annuity units, which are used during the payout phase when the annuity begins to make periodic payments to the annuitant based on the accumulated value. Understanding the differing terminologies and phases of a variable annuity is crucial for effective financial planning and management.