Accumulation Unit

During a variable annuity's pay-in phase, the accumulation unit value reflects:

1. A.A guaranteed fixed rateA guaranteed crediting rate describes a fixed annuity, where the money sits in the insurer's general account and the company bears the investment risk. In a variable contract the owner bears that risk, and the accumulation unit value moves with separate account performance.
2. B.The value of the separate account during accumulationCorrect - units mirror separate-account performance.
3. C.The surrender charge scheduleSurrender charges are a contractual cost schedule applied if the owner withdraws early, and they decline over time on their own terms. They are unrelated to how a unit is valued, which tracks the investment performance of the separate account.
4. D.The death benefit amountThe death benefit does move with contract value during accumulation, so the two are connected and this is the closest wrong answer. The accumulation unit value is narrower: it measures what one unit of the separate account is worth, and the number of units the owner holds is what changes as contributions are made.

Why: Accumulation units track the value of the separate account while the contract owner is contributing.

Annuitization is best described as:

1. A.Converting the accumulated contract value into a stream of periodic paymentsCorrect. At annuitization accumulation units are exchanged for a fixed number of annuity units and payouts begin.
2. B.Making a lump-sum withdrawal of the contract's valueA lump-sum surrender ends the contract. Annuitization creates a payment stream instead.
3. C.Exchanging one annuity contract for another without current taxThat is a Section 1035 exchange, which is a transfer between contracts, not the start of payouts.
4. D.Allocating contributions among the subaccounts of the separate accountThat is an allocation decision during accumulation, well before any payout begins.

Why: Annuitization is the event that converts the accumulated value into a stream of periodic payments. Accumulation units are exchanged for a fixed number of annuity units, and the payout phase begins.

Thalia contributes 500 dollars every month to a variable annuity during the accumulation period. Over the course of a volatile year, what happens to the NUMBER of accumulation units in her contract and to the VALUE of each unit?

1. A.The number of accumulation units stays fixed once the contract is issued, while the value of each unit fluctuatesThis describes ANNUITY units after annuitization, not accumulation units. Additional purchase payments must buy additional accumulation units.
2. B.The number of accumulation units increases with each payment, while the value of each unit fluctuates with separate account performanceCorrect. Each contribution buys more units; performance moves the per-unit value. Account value equals units times unit value.
3. C.Both the number of units and the value of each unit are guaranteed by the insurer general accountNothing in the accumulation phase of a variable annuity is guaranteed by the general account. The investment risk sits with the contract owner in the separate account.
4. D.The number of accumulation units fluctuates with performance, while the value of each unit is fixed at one dollarA variable annuity does not hold unit value constant. That constant-value, variable-count design belongs to a money market style account, not a variable annuity separate account.

Why: During accumulation, every purchase payment buys additional accumulation units at the unit value in effect on that day, so the NUMBER of units Thalia owns only goes up as she keeps contributing. The VALUE of each unit rises and falls with the investment performance of the separate account subaccounts she selected. That split is the whole architecture of a variable annuity: units measure ownership, unit value measures performance. Her total account value is simply units times unit value, so it can fall in a bad year even though her unit count never falls.

During the accumulation phase of a variable annuity, contributions purchase...

1. A.annuity units with a fixed valueAnnuity units appear only at annuitization, and their dollar value is not fixed.
2. B.FDIC-insured depositsVariable annuity contributions are not FDIC-insured deposits.
3. C.shares of the insurer's general accountThe general account backs fixed guarantees, not variable contributions.
4. D.accumulation units in the separate accountCorrect — accumulation-phase contributions buy accumulation units.

Why: Accumulation-phase contributions buy accumulation units in the separate account.