What does the term 'accumulation phase' refer to in variable annuities?

The term 'accumulation phase' in variable annuities refers to the time period of investment growth before the policyholder begins to withdraw income or take distributions. During this phase, the premium payments made by the policyholder are invested in various underlying investment options, such as stocks, bonds, or mutual funds, which can lead to both growth and fluctuations in value depending on market performance.

This phase is characterized by the potential for capital appreciation and the accumulation of assets within the annuity. The objective is to maximize the value of the investment before converting it into a stream of income. As investors contribute to their annuity during the accumulation phase, they have the opportunity to benefit from market gains, realizing investment growth that compounds over time.

Understanding this phase is essential for policyholders as it sets the groundwork for their future income payments, impacting their retirement strategy and financial planning. This concept is distinct from other options like fund withdrawals, experiencing market losses, or fees, which do not capture the essence of building value over time prior to accessing the annuity's benefits.