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
Latin phrase meaning "overpowering force"; an unavoidable accident or calamity; an accident for which no one is responsible; an act of god. ...
Dishonest statement to induce an insurance company to write coverage on an applicant. If the company knew the truth, it would not accept the applicant. Fraudulent misrepresentation gives a ...
Technique of breaking down the various losses as a whole into useful components called subsets (strata) so that no subset is overrepresented. The result is the classification of losses ...
Legal recourse available to survivors of a person who suffers a wrongful death. Under common law, only an injured person had the right to sue for damages. If a wrongfully injured person ...
Written statements on a form by a prospective insured about himself, including assets and other personal information. These statements and additional information, such as a medical report, ...
Type of grantor-retained income trust (grit) in which the grantor retains the right to the assets of the trust should he or she die before the term of the trust expires. ...
In a mercantile open-stock burglary insurance policy, the dollar amount of coverage as required by the COINSURANCE clause. This dollar amount is the MAXIMUM PROBABLE LOSS (MPL) of ...
Trust in which assets are controlled through several generations and makes use of generation-skipping tax exemption. ...
The cancellation provision clause appears in an insurance policy to leave a door open for the insurance company or insured to cancel a policy. This type of cancellation applies in instances ...
Have a question or comment?
We're here to help.