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Variable Annuity

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Definition of Variable Annuity

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Variable Annuity

A form of annuity policy under which the amount of each benefit is not guaranteed or specified. The amounts fluctuate according to the earnings of a separate investment account.



Related Terms:

ADF (annuity discount factor)

the present value of a finite stream of cash flows for every beginning $1 of cash flow.


Annuity

A regular periodic payment made by an insurance company to a policyholder for a specified period
of time.


Annuity

A series of payments or deposits of equal size spaced evenly over
a specified period of time


Annuity

A series of payments over a period of time. The payments are usually
in equal amounts and usually at regular intervals such as quarterly,
semi-annually, or annually.


annuity

Equally spaced level stream of cash flows.



Annuity

A contract which provides an income for a specified period of time, such as a certain number of years or for life. An annuity is like a life insurance policy in reverse. The purchaser gives the life insurance company a lump sum of money and the life insurance company pays the purchaser a regular income, usually monthly.


Annuity

Periodic payments made to an individual under the terms of the policy.


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Annuity due

An annuity with n payments, wherein the first payment is made at time t = 0 and the last
payment is made at time t = n - 1.


Annuity Due

annuity where the payments are to be made at the beginning of
each period


annuity due

a series of equal cash flows being received or paid at the beginning of a period


annuity due

Level stream of cash flows starting immediately.


Annuity factor

Present value of $1 paid for each of t periods.


annuity factor

Present value of an annuity of $1 per period.


Annuity in arrears

An annuity with a first payment on full period hence, rather than immediately.


Annuity Period

The time between each payment under an annuity.


Back To Back Annuity

This term refers to the simultaneous issue of a life annuity with a non-guaranteed period and a guaranteed life insurance policy [usually whole life or term to 100]. The face value of the life insurance would be the same amount that was used to purchase the annuity. This combination of life annuity providing the highest payout of all types of annuities, along with a guaranteed life insurance policy allowed an uninsurable person to convert his/her RRSP into the best choice of annuity and guarantee that upon his/her death, the full value of the annuity would be paid tax free through the life insurance policy to his family members. However, in the early 1990's, the Federal tax authorities put a stop to the issuing of standard life rates to rated or uninsurable applicants. Insuring a life annuity in this manner is still an excellent way to provide guaranteed tax free funds to family members but the application for the annuity and the application for the life insurance are separate transactions and today, most likely conducted through two different insurance companies so that there is no suspicion of preferential treatment given to the life insurance application.


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Continuous random variable

A random value that can take any fractional value within specified ranges, as
contrasted with a discrete variable.


decision variable

an unknown item for which a linear programming
problem is being solved



Deferred Annuity

An annuity providing for income payments to commence at a specified future time.


Deferred nominal life annuity

A monthly fixed-dollar payment beginning at retirement age. It is nominal
because the payment is fixed in dollar amount at any particular time, up to and including retirement.


dependent variable

an unknown variable that is to be predicted
using one or more independent variables


Discrete random variable

A random variable that can take only a certain specified set of discrete possible
values - for example, the positive integers 1, 2, 3, . . .


Endogenous variable

A value determined within the context of a model.


Equivalent annual annuity

The equivalent amount per year for some number of years that has a present
value equal to a given amount.


Exogenous variable

A variable whose value is determined outside the model in which it is used. Also called
a parameter.


Guaranteed Interest Annuity (GIA)

Interest bearing investment with fixed rate and term.


independent variable

a variable that, when changed, will
cause consistent, observable changes in another variable;
a variable used as the basis of predicting the value of a
dependent variable


Individual Retirement Annuity

An IRA comprised of an annuity that is managed
through and paid out by a life insurance company.



key variable

a critical factor that management believes will
be a direct cause of the achievement or nonachievement
of the organizational goals and objectives


Normal annuity form

The manner in which retirement benefits are paid out.


Normal random variable

A random variable that has a normal probability distribution.


Ordinary Annuity

An annuity where the payments are made at the end of each
period


ordinary annuity

a series of equal cash flows being received
or paid at the end of a period


RAMs (Reverse-annuity mortgages)

Mortgages in which the bank makes a loan for an amount equal to a
percentage of the appraisal value of the home. The loan is then paid to the homeowner in the form of an
annuity.


Random variable

A function that assigns a real number to each and every possible outcome of a random experiment.


Semi-variable costs

Costs that have both fixed and variable components.


Single-premium deferred annuity

An insurance policy bought by the sponsor of a pension plan for a single
premium. In return, the insurance company agrees to make lifelong payments to the employee (the
policyholder) when that employee retires.


slack variable

a variable used in a linear programming problem
that represents the unused amount of a resource at
any level of operation; it is associated with less-than-orequal-
to constraints


surplus variable

a variable used in a linear programming problem that represents overachievement of a minimum requirement; it is associated with greater-than-or-equal-to constraints


Variable

A value determined within the context of a model. Also called endogenous variable.


Variable annuities

annuity contracts in which the issuer pays a periodic amount linked to the investment
performance of an underlying portfolio.


Variable cost

A cost that is directly proportional to the volume of output produced. When production is zero,
the variable cost is equal to zero.


Variable cost

A cost that increases or decreases in proportion with increases or decreases in the volume of production of goods or services.


variable cost

a cost that varies in total in direct proportion
to changes in activity; it is constant on a per unit basis


Variable cost

A cost that changes in amount in relation to changes in a related activity.
Variance
The difference between an actual measured result and a basis, such as a budgeted amount.


variable cost ratio

the proportion of each revenue dollar
represented by variable costs; computed as variable costs
divided by sales or as (1 - contribution margin ratio)


Variable costing

A method of costing in which only variable production costs are treated as product costs and in which all fixed (production and non-production) costs are treated as period costs.


variable costing

a cost accumulation and reporting method
that includes only variable production costs (direct material,
direct labor, and variable overhead) as inventoriable
or product costs; it treats fixed overhead as a period cost;
is not acceptable for external reporting and tax returns


variable costs

Costs that change as the level of output changes.


VARIABLE EXPENSES

Those that vary with the amount of goods you produce or sell. These may include utility bills, labor, etc.


variable expenses

Expenses that change with changes in either sales volume
or sales revenue, in contrast to fixed expenses that remain the same
over the short run and do not fluctuate in response to changes in sales
volume or sales revenue. See also revenue-driven expenses and unitdriven
expenses.


Variable life insurance policy

A whole life insurance policy that provides a death benefit dependent on the
insured's portfolio market value at the time of death. Typically the company invests premiums in common
stocks, and hence variable life policies are referred to as equity-linked policies.


variable overhead efficiency variance

the difference between budgeted variable overhead based on actual input activity and variable overhead applied to production


variable overhead spending variance

the difference between total actual variable overhead and the budgeted amount of variable overhead based on actual input activity


Variable price security

A security, such as stocks or bonds, that sells at a fluctuating, market-determined price.


Variable rate CDs

Short-term certificate of deposits that pay interest periodically on roll dates. On each roll
date, the coupon on the CD is adjusted to reflect current market rates.


Variable rate loan

Loan made at an interest rate that fluctuates based on a base interest rate such as the
Prime Rate or LIBOR.


Variable rated demand bond (VRDB)

Floating rate bond that can be sold back periodically to the issuer.


Alternative mortgage instruments

Variations of mortgage instruments such as adjustable-rate and variablerate
mortgages, graduated-payment mortgages, reverse-annuity mortgages, and several seldom-used
variations.



 

 

 

 

 

 

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