Variable Dollar Annuity

Definition of "Variable dollar annuity"

Irene Poole real estate agent

Written by

Irene Pooleelite badge icon

RE/MAX Select

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.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Insurance Terms

Government reinsurance program that provided coverage for U.S. properties during World War II. Private insurers shared the first layer of coverage, with the government providing ...

Court that presides over estate distribution settlements, documentation of wills, and the appointment of legal guardians. ...

Organization of brokers and securities dealers in the over-the-counter market operating under the auspices of the Securities and Exchange Commission (SEC). Its purpose is to enforce, on a ...

Endorsement to an automobile insurance policy that protects an insured in either or both of two circumstances when driving a non owned car: business endorsement if the insured's negligent ...

Central computerized facility that keeps on file the health history of the applicants for life and health insurance with member MIB companies. For example, the health record of an applicant ...

Transaction of reinsurance under which there is a limit on the total liability of the re-insurer and future investment income is a recognized component of the underwriting process. This ...

Coverage following the same structure as group term, the significant difference being that premiums go toward the purchase of permanent insurance instead of term insurance. The employee has ...

Individual responsible for insurance agency operation in a particular area, including sale of life and health insurance, servicing policies already sold, recruiting and training agents, and ...

Amount of insurance coverage that an insurance company is willing to write on a given category of business. ...

Popular Insurance Questions