What occurs when an annuity's account value dips below zero?

When an annuity's account value dips below zero, the insurance features are designed to provide a level of protection for the policyholder. In particular, many annuities come with guarantees that prevent the loss of the initial investment, even when market conditions lead to a decrease in account value. This means that regardless of the performance of the underlying investments, the policyholder will not lose their principal amount, which is a significant security feature that differentiates annuities from other investment vehicles.

This safety net is especially important for investors who prioritize capital preservation and want to ensure that they have a guaranteed income in retirement. The protective elements embedded in the annuity contract, such as mortality and expense risk charges or investment guarantees, serve to shield the policyholder's initial investment from market volatility. Therefore, the correct understanding is that the insurance features of annuities actively prevent total loss of the initial investment, even in adverse market scenarios.