What Is an Annuity Unit?
An annuity unit is an accumulation unit for which the annuitant has annuitized their contract. This is a sub-account of the retired person's total accumulated annuity. These units address a fixed share of ownership of the insurer's accounts portfolio and are different in key ways from mutual fund shares.
How an Annuity Unit Works
At the point when an annuity holder, or annuitant, changes from accumulating wealth to requiring their savings, they start to draw on their set aside cash to finance their retirement. While saving, the annuitant has made periodic payments to their life insurance company to purchase shares of ownership of an exceptionally large portfolio managed by the insurer.
Annuities happen when the insured needs to begin taking money out, thus they convert their total accumulated savings to begin paying them their income. To achieve this, the insured party purchases annuity units with the money that was formerly being saved as accumulation units. Think of this as an accounting measure to decide your proportional ownership of your separate account.
What Annuity Unit Numbers Mean
Annuity sub-accounts look like mutual funds, yet there's a difference among them and what has generally to do with how their values are calculated. Investment company Fidelity, which offers annuities, makes sense of it like this: "The net asset value, or NAV, is the value of each share of the mutual fund. That value, which is recalculated every day the stock market is, not entirely set in stone by partitioning the total assets minus all liabilities by the number of outstanding shares every day."
Fidelity adds the accompanying:
The accumulation unit value, or AUV, is the value of every unit inside the Variable Account; this value is recalculated every day the stock market is open. The AUV considers the underlying fund's daily performance as measured by the NAV change plus the impact of any distributions, for example, capital gains and dividend income, less the annuity's daily separate account charges. Since the value of the units you hold as of now addresses your "share" of this activity, you won't see any of the distributions reported separately on your annuity statement.
Another twist is that with mutual funds, there might be distributions of capital gains and dividends quarterly or yearly, paid straightforwardly to the shareholder. With most annuities, the responsible company is the shareholder, and these distributions decline the net asset value of the fund and increase the number of shares.
"When a distribution happens, the fund's NAV will diminish and the number of shares will increase, however the unit value of each subaccount won't change," as per Fidelity.
- Accumulation units convert to annuity units once the insured needs to begin making withdrawals.
- An annuity unit addresses the time accumulated during an annuity contract.
- AUV, which represents accumulated unit value, shows how much every annuity unit is worth.