Definition of Separate Account
In the context of insurance, a Separate Account refers to a pool of funds that are segregated from an insurer’s general assets, and are maintained and invested independently. This is especially relevant in dealing with funds for a group retirement plan.
Purpose
The main purpose of a Separate Account is to safeguard the funds intended for specific uses, such as annuity or life insurance policies linked to investment portfolios, by isolating them from the insurer’s standard operational assets. This guarantees that the obligations to policyholders can be met despite the financial status of the company’s general funds.
Legal Framework
In the United States, Separate Accounts are regulated under various state laws pertaining to insurance. They must adhere to the standards set by entities such as the National Association of Insurance Commissioners (NAIC).
For detailed regulations, informative guides can often be found through accessing resources like naic’s publications or directly reviewing the relevant sections in laws like The Employee Retirement Income Security Act (ERISA), which can impact how these assets should be managed.
Investment Strategies
The investment strategy of a Separate Account can significantly vary but frequently aims at achieving growth while maintaining the necessary liquidity to match future liabilities. Portfolio managers have the autonomy to select a mix of investments, usually consisting of bonds, stocks, and other securities, specific to the risk tolerance and goals of the retirement fund.
