What is a Separate Account in the context of variable products?

What is a Separate Account in the context of variable products?

• A. The insurer's general account
• B. A separate account maintained by the insurer that holds investments
• C. The account containing investments supporting variable products, segregated by federal securities law
• D. A brokerage account

Answer: (C)

In variable products, the money that pays future benefits isn’t kept with the insurer’s traditional funds. It is placed in a separate account that is legally distinct from the insurer’s general assets. This separate account holds the sub-accounts of investments chosen for the contract, and the contract’s value rises or falls with those investments. Federal securities laws require this money to be kept segregated, so owners’ investment risk rests with the separate account, not with the insurer’s general finances. That combination—an account dedicated to backing variable contracts and protected by securities law segregation—is what makes the separate account distinct. So the best description is a separate account maintained by the insurer that holds investments for the variable products and is segregated by federal securities law.

In variable products, the money that pays future benefits isn’t kept with the insurer’s traditional funds. It is placed in a separate account that is legally distinct from the insurer’s general assets. This separate account holds the sub-accounts of investments chosen for the contract, and the contract’s value rises or falls with those investments. Federal securities laws require this money to be kept segregated, so owners’ investment risk rests with the separate account, not with the insurer’s general finances. That combination—an account dedicated to backing variable contracts and protected by securities law segregation—is what makes the separate account distinct.

So the best description is a separate account maintained by the insurer that holds investments for the variable products and is segregated by federal securities law.