In a Variable annuity, benefits are based on...

• A. Fixed dollar amounts
• B. The insurer's guarantees only
• C. The policy's cash value only
• D. Units rather than specific dollar amounts

Answer: (D)

In a variable annuity, the payout isn’t fixed in dollars. Benefits are determined by the value of the separate investment account, expressed in units. You purchase units with premiums, and while the number of units you own stays the same, the value per unit rises or falls with the investment performance. When benefits are paid, you receive based on the number of units you hold times the current per-unit value, not a set dollar amount. That’s why benefits are described as based on units rather than specific dollar amounts. Fixed dollar amounts describe a fixed annuity, insurer guarantees alone ignore the investment risk, and the cash value idea fits life insurance more than the core structure of a variable annuity.