510 / What are the “separate accounts” in a variable annuity?

The “separate accounts” in a variable immediate or deferred annuity are investment accounts, similar in some respects to mutual funds, with specified investment objectives. The contract owner purchases these accounts in “accumulation units” (for deferred variable annuity contracts) or “annuity units” (for immediate variable annuities). The cash value of the deferred annuity and the amount of each annuity payment in the immediate annuity will vary according to the performance of these units, which are re-priced daily.

There is, in both immediate and variable annuities, an annual expense charge of each separate account which impacts the cash value of the deferred contracts and the amount of annuity payments in immediate contracts. The amount of this charge can usually change over time, and, in some contracts, may be waived in some years.

Variable deferred annuity contracts also offer “fixed” accounts, which act like fixed deferred annuities in having a guarantee of principal and a fixed rate of interest that is usually declared each year. There is no annual expense charge for this “fixed” account.