Written By : Kim Borwick
Financially Reviewed By : Thomas J. Brock, CFA, CPA
This page features 3 Cited Research Articles
Fact-Checked

Annuity.org partners with outside experts to ensure we are providing accurate financial content.

These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times.

Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism.

Our expert reviewers hold advanced degrees and certifications and have years of experience with personal finances, retirement planning and investments.

Accumulation units measure the value of a deferred variable annuity’s variable account during the accumulation phase. Deferred variable annuities consist of the insurance company’s general account and separate subaccounts. The value of the separate account will fluctuate with the value of its accumulation units — which rise or fall depending on the performance of the selected subaccounts.

Variable annuities bear some resemblance to mutual funds, but there are significant differences between these financial products. Specifically, the value of an accumulation unit is not the same as the value of a mutual fund share.

Likewise, an accumulation unit is not the same thing as an income unit. In order to understand and assess the value of a variable annuity subaccount, you need to know the difference between these terms.

How Do Accumulation Units Work?

When you “allocate annuity assets” in a deferred variable annuity, you are essentially buying units of a subaccount. As opposed to investors who buy shares of a mutual fund, annuity owners are not shareholders.

The insurance company is the shareholder of the mutual fund and, subsequently, the recipient of any interest or dividend distributions. The annuity owner, on the other hand, is not entitled to any interest or dividends.

Your ownership of the investment option — that is, the separate account (subaccount) — you choose to contribute to is represented by the annuity unit value, not the net asset value, which represents the value of a single share.

If the variable annuity’s investments fall, the accumulation unit value also falls. This means that the annuity’s value is lower, even though the number of units remains the same.

Helpful Terms:
Accumulation unit value (AUV)
The value of each unit in the variable account
Net asset value (NAV)
The value of each share of the mutual fund
Subaccount
The separate account of a variable annuity
Mutual fund
An investment company that pools money from many investors and invests it based on specific investment goals (FINRA)
Deferred variable annuity
A variable annuity that begins paying income after a period of accumulation

To help investors understand how their variable annuity contract works, the U.S. Securities and Exchange Commission requires that all variable annuities be accompanied by a prospectus, which explains the investment objective and the methods for assessing the value of the variable accounts.

Income Units vs. Accumulation Units

Income units are paid in the form of interest and dividends, which go directly to the investor, whereas accumulation units are reinvested into the variable annuity subaccounts.

Immediate annuities, which convert premiums to income right away, don’t have an accumulation period. People who purchase immediate annuities for an income stream that begins right away are not counting on the annuity value to grow. The value of their annuities is measured in income units, also referred to as annuity units.

This is why it’s important to have a clear goal for your annuity. If you don’t know your objectives for any type of annuity or investment, you may wind up with an annuity that doesn’t fit your financial needs.

When a deferred variable annuity is annuitized, the accumulation units are converted to income units and earnings are no longer reinvested for compound growth.

Another Benefit of Accumulation Units in Separate Accounts

Unlike fixed annuities, variable annuities are regulated by the SEC and the National Association of Insurance Commissioners.

The insurer’s general account is not protected from creditors if the company fails.

The separate account, however, is not subject to the claims of creditors in such a case.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: March 11, 2021

3 Cited Research Articles

Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.

  1. FINRA. (2013, December 2). Mutual Funds. Retrieved from https://www.finra.org/investors/insights/mutual-funds
  2. U.S. Securities and Exchange Commission. (2018, October 30). Updated Investor Bulletin: Variable Annuities. Retrieved from https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/updated-5#Key_Risks
  3. U.S. Securities and Exchange Commission. (n.d). Variable Annuities: What You Should Know. Retrieved from https://www.sec.gov/investor/pubs/sec-guide-to-variable-annuities.pdf