Florida 2-15 Life, Health and Variable Annuity AgentFlorida Laws and Regulations Specific to Life Insurance and AnnuitiesMedium
A Florida resident owns a variable annuity and is currently in the accumulation phase. The value of their annuity is determined by the performance of the separate accounts they have chosen. What is the primary characteristic of these separate accounts that differentiates them from the insurer's general account?
- AThey offer a guaranteed rate of return.
- BThey provide a fixed income stream during the accumulation phase.
- CThey are subject to the insurer's general investment portfolio.
- DThey are invested in a diversified portfolio of common stocks and bonds, with values fluctuating based on market performance.
Show answer & explanationAnswer & explanation
Correct answer: D. They are invested in a diversified portfolio of common stocks and bonds, with values fluctuating based on market performance.
Separate accounts in a variable annuity are invested in a diversified portfolio of equities, bonds, or money market instruments, and their values fluctuate with market performance, directly impacting the annuity's value. This contrasts with the insurer's general account, which guarantees principal and interest.
Why the other options are wrong
- A. Guaranteed rates are characteristic of the general account, not separate accounts.
- B. A fixed income stream is characteristic of the annuitization phase of a fixed annuity, not the accumulation phase of a variable annuity.
- C. Separate accounts are distinct from the general account and its portfolio.
Variable Annuity Separate Accounts
Accounts within a variable annuity where premiums are invested in a portfolio of securities, and their value fluctuates based on market performance.
- Values are not guaranteed.
- Investment risk is borne by the annuitant.
- Must be registered with the SEC as an investment company.
Memory trick: General is guaranteed; Separate is speculative.