FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationProcessing Customer Orders and TransactionsMedium
A client decides to redeem shares from a variable annuity contract. Which of the following statements regarding the redemption process is most accurate?
- AThe client will receive the redemption proceeds within 1 business day of the request.
- BThe insurance company must honor the redemption request immediately upon receipt.
- CThe redemption value is based on the NAV calculated at the time the request is received.
- DThe redemption value is based on the NAV calculated at the end of the business day following the request.
Show answer & explanationAnswer & explanation
Correct answer: D. The redemption value is based on the NAV calculated at the end of the business day following the request.
Variable annuities, like mutual funds, use forward pricing. A redemption request received before the market close will be priced at the NAV calculated at the close of that business day. If received after the market close, it will be priced at the NAV calculated at the close of the next business day. Proceeds must typically be sent within 7 calendar days.
Why the other options are wrong
- A. This is incorrect. Insurance companies typically have up to 7 calendar days to send redemption proceeds.
- B. While the request must be processed, 'immediately' is not accurate; forward pricing rules and processing time apply.
- C. This is incorrect. Forward pricing dictates that the next calculated NAV is used, not the NAV at the exact time of request.
Variable Annuity Redemption Pricing
Redemption requests for variable annuities are priced using forward pricing, meaning the next calculated NAV after the request is received.
- NAV is typically calculated at the end of each business day.
- Requests received after the market close are priced the next day.
- Proceeds must be paid within 7 calendar days.
Memory trick: Redeem Riches? Next NAV, Not Now.