Variable Dollar Annuity
Definition of "Variable dollar annuity"
Annuity in which premium payments are used to purchase accumulation units, their number depending on the value of each unit. The value of a unit is determined by the value of the portfolio of stocks in which the insurance company invests the premiums. At the time of the payment of benefits to the annuitant, the accumulation units are converted to a monthly fixed number of units. The variable element is the dollar value of each unit. For example, assume that the annuitant pays a monthly premium of $100. If the accumulation unit value during one month is $50, two units are purchased. In another month, if the value of the accumulation unit is $25, four units are purchased. In a third month, the value of the unit is $10, resulting in the purchase of 10 units. This allows the market use of the investment strategy of dollar cost averaging. Accumulation units are credited to the annuitant's account, a procedure that is similar to purchasing shares in a mutual fund.
When income benefits are scheduled to begin, total accumulation units are converted to assume 100 income benefit units per month. The value of the income unit will vary according to the company's stock investments; in one month the annuitant's income might be $1000, in another month $500, in another month $1200. Changes in the investment experience by the insurance company are passed on to the annuitant, but the company absorbs fluctuations in expenses and mortality experience.
Popular Insurance Terms
Form of insurance that insurance companies buy for their own protection, "a sharing of insurance." An insurer (the reinsured) reduces its possible maximum loss on either an individual risk ...
Table charting relative costs of a group of cash value life insurance policies derived by using the net cost method of comparing costs (traditional net cost method of comparing costs; net ...
Rule concerning stock sold and then repurchased or a similar security repurchased (warrants or options) within 30 full days before or after the day of the sale. Losses established from such ...
Employee's right to transfer pension benefit credits from a former employer to a current employer. ...
Same as term Corridor Deductible: type of major medical deductible amount that acts as a corridor between benefits under a basic health insurance plan and benefits under a major medical ...
Group that advises on employee benefit plans as to amount of benefits to be paid, how benefits are to be financed, and how employees are to qualify for benefits (vesting requirements). An ...
Analytical procedure to predict the failure rate of a system still in the design stage. ...
Provision commonly found in fire insurance contracts. If the insured knows that a hazard is increased, most property contracts permit the insurance company to suspend or terminate coverage. ...
Total limit on the amount of coverage an insurer will underwrite on an individual risk. The amount underwritten includes the amount to be ceded through a reinsurance agreement. ...
Have a question or comment?
We're here to help.