Fixed vs Variable Annuity
A fixed annuity guarantees crediting rates and payout amounts, insurer bearing investment risk in the general account. A variable annuity's accumulation and income depend on separate-account subaccount performance, the owner bearing the risk.
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Practice This Concept
What licensing requirement applies to a producer selling variable annuities?
A life insurance license plus registration as a securities representative, typically FINRA Series 6 or 7 — A variable annuity is both an insurance product and a security because the owner directs premiums into separate investment accounts and bears the investment risk. Selling it therefore requires a life insurance license AND securities registration — typically a FINRA Series 6 or 7. The product must also be offered with a prospectus. This dual-licensing requirement is a defining difference from fixed annuities.
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Where are premium payments under a variable annuity held?
In a separate account that is not part of the insurer's general account — Variable annuity premiums are invested in a separate account of the insurer, which holds the mutual-fund-like subaccounts the owner selects. Because these assets are segregated from the general account, the owner bears the investment risk and the contract's value fluctuates with the subaccounts' performance. The general account, by contrast, supports fixed products and guarantees.
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