Annuities✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
During the accumulation phase of a variable annuity, the owner's premiums are converted into:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
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.
Why the other options are wrong
- B) Annuity units apply to the distribution phase, not the accumulation phase, and their value is not fixed; it fluctuates with performance.
- C) The owner buys units in the separate account, not shares of the insurance company itself.
- D) A variable annuity's cash value is not guaranteed; it is the fixed annuity that guarantees principal.
Memory hook
Accumulation phase = accumulation units; payout phase = annuity units. Both float with the market.