Variable annuities are insurance contracts combined with mutual-fund-like subaccount investments in a separate account. During the accumulation phase, contributions purchase accumulation units. Upon annuitization, accumulation units convert into a fixed number of annuity units whose monthly dollar value fluctuates.
The Assumed Interest Rate (AIR) is a benchmark rate used to calculate payments. If actual separate account performance exceeds the AIR, the next check increases. If performance equals the AIR, the check stays the same. If performance falls below the AIR, the check decreases.
Options are derivative contracts based on 100 shares of underlying stock. A call option gives the holder the right to buy; a put option gives the holder the right to sell. Advisory clients holding long stock often sell covered call options to generate premium income while capping upside appreciation.