Variable Annuities: Accumulation Units vs. Annuity Units Valuation
An investor makes regular monthly contributions into a non-qualified deferred variable annuity. As payments are made, the investor purchases 'Accumulation Units.' When the contract owner decides to annuitize the contract and begin receiving lifelong monthly income, what structural transition occurs?
Upon annuitization, accumulation units convert into a FIXED NUMBER of Annuity Units. The monthly payment varies because the VALUE of each annuity unit fluctuates against the AIR.
Complete Analysis & Legal Rationale
In a variable annuity: (1) During the accumulation phase, contributions buy accumulation units whose value fluctuates with the underlying separate account subaccounts; (2) Upon annuitization, accumulation units convert into a FIXED NUMBER of annuity units calculated based on life expectancy, settlement option, and Assumed Interest Rate (AIR); (3) During the payout phase, the number of annuity units remains fixed for life, but the dollar payout fluctuates monthly based on the separate account's investment performance relative to the AIR.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Upon annuitization, accumulation units convert into a FIXED NUMBER of Annuity Units. The monthly payment varies because the VALUE of each annuity unit fluctuates against the AIR.
Fails to adhere to packaged product rules for B.
Fails to adhere to packaged product rules for C.
Fails to adhere to packaged product rules for D.
Official Standard: In a variable annuity: (1) During the accumulation phase, contributions buy accumulation units whose value fluctuates with the underlying separate acc