VARIABLE ANNUITY SERVICES Flashcards
Variable annuity insurers provide services that are not found in fixed or equity-index annuities. What are these services?
- dollar cost averaging
- asset allocation programs
- transferring amounts among subaccounts.
Regarding variable annuities, what is “Dollar Cost Averaging”?
Dollar cost averaging programs are structured by placing funds in a money-market-like subaccount and systematically placing a relatively small amount of money into other subaccounts. The theory behind dollar cost averaging is that by contributing the same amount of money on a regular basis into the subaccounts, the impact of market fluctuations on the value of a portfolio is reduced. When prices are high, the money will purchase fewer units, and when prices are low, more units are purchased with the same amount of money. Contracts often require that at least $10,000 is placed in a money market subaccount for dollar cost averaging programs.
Regarding variable annuities, what is “Asset Allocation Programs”?
Asset allocation programs allow the insurance company or investment manager to reallocate the amounts in the annuity based on an asset allocation strategy approved by the policyowner. In some cases, the variable annuity has a prescribed asset allocation program it recommends. For example, the asset allocation program may place 25% of the funds in a conservative growth subaccount, 25% in a bond fund, 25% in an aggressive growth fund and 25% in a money market or fixed account. When market conditions change, the asset allocation program may shift the funds, such as transferring 15% of the funds in the money market subaccount into the aggressive growth fund, or vice-versa. The reallocation of amounts prescribed by the asset allocation program may occur on a scheduled basis, such as every quarter, or may be at the discretion of the investment managers of the subaccounts.
Regarding variable annuities, what is “Transfers among Subaccounts”?
Variable annuity contracts generally allow transfers among subaccounts without fees, up to a specified limit each contract year. For example, the policyowner may be allowed to make up to twelve transfers during the contract year without a fee. When more transfers are made after the allowed number, a fee is charged of $10 to $25 per transfer.
