Annuity Units are used to determine the amount of each payment during the payout phase. When payouts occur, accumulation units are converted into annuity units. Which statement is correct?

Annuity Units are used to determine the amount of each payment during the payout phase. When payouts occur, accumulation units are converted into annuity units. Which statement is correct?

• A. Accumulation Units
• B. Annuity Units
• C. Depreciation Units
• D. Payout Units

Answer: (B)

The payouts are set up using annuity units. When the contract moves from accumulation to payout, the accumulated value is converted into a fixed number of annuity units. The payment you receive each period is determined by multiplying that number of annuity units by the current value of one annuity unit. This mechanism means payments can vary with investment performance because the value per annuity unit fluctuates, even though the number of units remains fixed at annuitization. Depreciation units aren’t part of the annuity framework, and payout units isn’t a recognized term in this context. Accumulation units are used during the growth phase, not for calculating ongoing payments once payouts begin.

The payouts are set up using annuity units. When the contract moves from accumulation to payout, the accumulated value is converted into a fixed number of annuity units. The payment you receive each period is determined by multiplying that number of annuity units by the current value of one annuity unit. This mechanism means payments can vary with investment performance because the value per annuity unit fluctuates, even though the number of units remains fixed at annuitization.

Depreciation units aren’t part of the annuity framework, and payout units isn’t a recognized term in this context. Accumulation units are used during the growth phase, not for calculating ongoing payments once payouts begin.