In a variable annuity, what does an accumulation unit represent during the accumulation period?

• A. A cash value that never changes
• B. A guaranteed principal share
• C. A contract owner's proportionate unit of interest in a separate account
• D. The annual interest credited

Answer: (C)

During the accumulation period, the value of a variable annuity is built through accumulation units, which represent the contract owner's proportional stake in the separate account. Each accumulation unit is a unit of interest in the pool of subaccounts that are invested, so the owner’s value moves with the performance of those investments. The number of units purchased is determined by the premium amount divided by the price per accumulation unit at purchase, and the value of the contract is the number of units times the current value per unit. This is different from a fixed cash value or guaranteed principal, and there is no guaranteed annual interest—the unit value can rise or fall with market performance.