1. An insured bought an annuity ten years ago and will retire in five years. To determine the value of the annuity, the number of accumulation units owned is multiplied by the value of the separate account. This type of annuity is known as a
Answer: B
This type of annuity is known as a variable annuity.
A variable annuity is characterized by its investment in separate accounts, where accumulation units are used to calculate the value of the annuity. This means the value can fluctuate based on the performance of the underlying investments.
A) fixed annuity.
A fixed annuity provides a guaranteed payout and does not involve investment in separate accounts. The value of a fixed annuity remains constant and does not change based on market performance, making it an incorrect choice for this scenario.
B) variable annuity.
A variable annuity is directly tied to the performance of separate accounts, where the number of accumulation units owned is multiplied by the value of these accounts to determine the annuity's value. This aligns perfectly with the context provided in the question.
C) flexible annuity.
A flexible annuity allows for varying premium payments and investment options, but it does not specifically refer to the method of calculating the value based on accumulation units. Therefore, it does not accurately describe the annuity in question.
D) accumulation annuity.
An accumulation annuity refers to the phase where funds are being contributed and grow over time, but it does not specifically address how the value is determined based on accumulation units. Thus, it does not fit the definition required for this question.
Conclusion
The variable annuity is the correct answer because it accurately describes the calculation method involving accumulation units and separate accounts. In contrast, fixed, flexible, and accumulation annuities do not incorporate this investment mechanism, failing to align with the scenario presented.