Florida 2-15 Life, Health and Variable Annuity AgentFlorida Laws and Regulations Specific to Life Insurance and AnnuitiesMedium
A Florida investor is considering purchasing a Variable Annuity. The agent explains that the value of the annuity's accumulation units will fluctuate. What BEST determines the value of these accumulation units?
- AThe Consumer Price Index (CPI) and inflation rates.
- BThe fixed interest rate declared by the insurance company.
- CThe performance of the separate account's underlying investments.
- DThe guaranteed minimum return specified in the contract.
Show answer & explanationAnswer & explanation
Correct answer: C. The performance of the separate account's underlying investments.
The value of accumulation units in a variable annuity is directly tied to the investment performance of the separate account. Unlike fixed annuities, variable annuities carry investment risk, and their values are not guaranteed.
Why the other options are wrong
- A. Inflation rates and CPI are economic indicators that might influence investment performance but do not directly determine the value of accumulation units.
- B. This describes a characteristic of fixed annuities, not variable annuities, where the value fluctuates.
- D. While some variable annuities may offer guarantees, the *primary* determinant of unit value fluctuation is market performance, not a guaranteed minimum return.
Variable Annuity Accumulation Units
Shares purchased during the accumulation phase of a variable annuity, whose value fluctuates based on the investment performance of the underlying separate account.
- Value is not guaranteed
- Reflects separate account performance
- Used to calculate annuity payments in the annuitization phase
Memory trick: Variable value? Look to the separate account's market route!