If the separate account return exceeds the AIR, what happens to product values?

If the separate account return exceeds the AIR, what happens to product values?

• A. They decrease
• B. They stay the same
• C. They rise
• D. They become guaranteed increases

Answer: (C)

When the separate account—the investment portion of a variable annuity—outperforms the assumed interest rate, the contract’s accumulation value gets a higher credit. The value credited to the contract is driven by actual investment returns, so beating the AIR adds to the account rather than subtracting from it. In short, favorable performance above AIR causes the product values to rise. The rise isn’t guaranteed to continue forever unless a specific guarantee feature is in place, but at that moment the accumulation value increases.

When the separate account—the investment portion of a variable annuity—outperforms the assumed interest rate, the contract’s accumulation value gets a higher credit. The value credited to the contract is driven by actual investment returns, so beating the AIR adds to the account rather than subtracting from it. In short, favorable performance above AIR causes the product values to rise. The rise isn’t guaranteed to continue forever unless a specific guarantee feature is in place, but at that moment the accumulation value increases.