In a variable annuity, money deposited is placed into a separate accumulation account and then distributed into sub accounts.

• A. General account with fixed rate
• B. Separate accumulation account and subaccounts
• C. Bank savings account
• D. Government securities pool

Answer: (B)

In a variable annuity, premiums go into a separate accumulation account that is distinct from the insurer’s general account, and the money is then allocated into multiple subaccounts. These subaccounts function like investment options (often similar to mutual funds), each with its own risk and potential return. The value of the contract depends on how these subaccounts perform, not on a guaranteed fixed rate.

This setup contrasts with fixed annuities, which use the general account with a guaranteed fixed rate. Bank savings accounts aren’t the funding vehicle for annuities, and while some subaccounts might invest in government securities, the defining structure is the separation into a dedicated accumulation account and a set of subaccounts rather than a single fixed-account or bank product.