In the insurance industry, the clients will always be given the options on what account to have and what to do about it. These accounts may be general or separate depending on the account holders.
What does separate account means?
Separate account is an account that has separate reporting and accounting from coverage of the general account. It is usually for the purpose acquiring new assets for investments. This type of account allows the clients to participate and choose from any of the pooled investment the insurance company provides depending on the client’s desire of performance and risk tolerance. The client with a separate account is always guided with a broker or an adviser that will take advantage of the numerous resources to establish a profitable and manageable account. Sine this account is for the client’s advantage, the generated and invested proceeds of the account will be separated from the client’s general account in the insurance company.
One major advantage of a separate account is that the client is allowed to have his own choices of his investment method by choosing the laid categories provided by the insurance company which means that a client who is somehow conservative with his money investment can choose to be a part of the pooled investment that includes stable investments that provides small but continuously stable in making returns. These clients who are more than willing to invest and assume to a higher degree of risk can opt to choose any category that is potential enough to come up with high returns caused by increasing rate of instability and potentially dangerous.
Separate account is most likely similar to the functions of a mutual fund. However, these two have essential differences. First, the funds involved in this type are most likely will require minimum investment that is bigger than the funds needed in a mutual fund. The second difference has got to do in the ownership. In a separate account there is no ownership of the investor on the portion of the whole pool of investments but instead the investor owns securities directly.
The separate account in US is characterized either as non-managed or managed account. Non-managed accounts are managed through a passive approach and are checked and evaluated in a less often basis. On of this type is not really superior compared to another since values of the two depends on the great deal of the desired outcome and the whole financial goals of the client’s investment based on the returns. On the other hand, managed account gives an aggressive and proactive management that is included in the process to get the highest return earnings as possible.
Sometimes there is also confusion between an investment strategy called Separately Managed Account and the Separate Account. Although both have similarities, SMA or Separately Managed Account is managed privately by a broker instead of an insurance company offering while being involved in the account management. Both are good strategies to generate returns if the accounts are handled properly.