Subaccounts
The mutual-fund-like investment divisions of a variable annuity into which the purchaser allocates premiums, bearing investment risk and choice.
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During the accumulation phase of a variable annuity, the owner's premiums are converted into:
Accumulation units, whose value fluctuates with the performance of the underlying subaccounts — In a variable annuity's accumulation phase, premiums purchase accumulation units. The value of each accumulation unit rises and falls with the investment performance of the subaccounts the owner selected. At annuitization, the accumulated value is converted into annuity units, and income payments are then made based on the number of annuity units and their fluctuating value. This unit structure is how market gains and losses are passed through directly to the owner.
National insurance concept
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.
National insurance concept
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