What is the Difference Between Accumulation and Annuity Periods?
Deferred Annuities have both an accumulation period and annuity period. During the accumulation phase the owner of the annuity makes deposits into the account. During the annuity phase the insurance company pays the annuitant (original investor) the contractually agreed upon amount for the specified period of time.
Accumulation Period Vs. Annuity Period
Annuities are contracts that are issued by insurance companies. So the annuitant, the holder of the annuity, pays into the annuity and then later receives a regular payment from the insurance company. So, an annuity guarantees that an individual will not outlive his or her savings. Annuities can be either fixed or variable.
The life of an annuity is divided into two distinct phases: the accumulation period and the annuity period.
In the case of a variable annuity, all the premiums paid by the annuitant are called “accumulation units”. The period of time in which the annuitant is increasing the amount of his or her investment by paying premiums is the accumulation period. We can also call this the “premium”. All the money that the annuitant is paying into the annuity are called premiums or accumulation units.
Now, once the accumulation period is over, accumulation units become annuity units.
Annuity units are defined as the shares of funds that will be dispersed to the annuitant during the annuity period. What we did call premiums are now payments. There is a certain amount of money that the annuitant was paying into the annuity on a regular basis and those were called premiums. Now there is a certain amount of money they are receiving from the annuity, which are called Payments.
The accumulation period is from the start of the contract up unto the start of the annuity period, and the annuity period lasts usually until the annuitant’s death.
That’s a look at the two phases of an annuity.
Provided by: Mometrix Test Preparation
Last updated: 06/27/2018
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