Variable Annuities
A variable annuity, just like any annuity, is a contract with an insurance company.
With a variable annuity, you place your funds with an insurance company and you choose how the money will be invested. You choose investments from a pre-selected list of funds (these funds are called sub-accounts inside of a variable annuity) which can range from aggressive stock funds to conservative bond funds.
Because you choose the investments, the returns will vary depending on the underlying performance of the investments you choose. This is why it is called a variable annuity. In comparison, with a fixed annuity, you do not choose the investments; instead the insurance company invests your funds and provides you with a stated guaranteed return.
Most variable annuity contracts offer death benefit riders, which can provide a benefit for your heirs, and living benefit riders, which provide guarantees as to how much income you could draw from the policy at a later date.
Fixed Annuities
An investment vehicle offered by an insurance company that guarantees a stream of fixed payments over the life of the annuity. The insurer, not the insured, takes the investment risk. During the deferred period of a fixed annuity, your value steadily increases as interest is credited to the policy.
Bonus Annuities
A bonus annuity is a variable annuity that immediately credits your account for a specific percentage upon the purchase of the product.
Index Annuities
An indexed annuitiy is a fixed annuity, either immediate or deferred, that earns interest or provides benefits that are linked to an external equity reference or an equity index. The value of the index might be tied to a stock or other eqiuty index. One of the most commonly used indices is the S&P 500, which is an equity index. The value of any index varies from day to day and is not predictable.
Immediate Annuity
Immediate annuities provide income payments that start within one year after your initial premium. You may want an immediate annuity for a guaranteed income for your retirement years.
Withdrawals are taxable and, if taken before age 59½, may be subject to a 10% tax penalty. An investment in variable annuities will fluctuate and the value of a variable annuity at redemption may be worth more or less than the original investment.
