All You Need to Know about Variable Annuities

Before diving into the exciting world of variable annuities, it is important to understand the fundamental definition of what consist of. Simply put, An annuity is an agreement between you and your insurance company wherein you make payment(s) to your carrier and they agree to reciprocate those payments at a predetermined future date. Doing this insures you against the unknown: the future. Should you be laid off or forced into early retirement, an annuity is income from your insurance carrier you can count on.

However, variable annuities are more than just your basic annuity. The insurance aspect is combined with a mutual fund aspect. Because of the mutual fund component, variable annuities do involve some risk but it is important to remember that variable annuities require long-term investment and the chances are there for a large pay-off in the end.

Several benefits of variable annuities include:

I. Ability to defer your taxes - Until the pay-off at the end of your variable annuity, you have the option to defer taxes on your income or earnings from your investment.

II. Death benefit included - Should something catastrophic happen before you are able to benefit from your variable annuity, your insurance company will pay out the returns of your investment to the beneficiary of your choosing.

III. Affordable periodic payments allowed - Variable annuities also afford you the option of paying installments periodically as opposed to paying upfront with one large lump sum.

Now that you know the benefits that come with variable annuities, it is now important to educate yourself on how they work. Variable annuities generally come in two phases:

• The accumulation phase - The inaugural phase of variable annuities involves you making payments to your insurance provider which, in turn, invests those payments into a mutual fund of your choosing. Ask your agent about your various investment options and keep in mind you can move your money from one investment to the other without being taxed.

• The payout phase - If your investments have yielded any profits, here is where you begin seeing the monetary returns of your investment. Remember you can choose whether you want your payout in the form of a single large amount or a series of periodic payments.

There are a number of fees that may or may not be associated with your variable annuity. Some common ones include surrender charges, mortality risk charge, administrative fees, and underlying fund expenses. Ask your agent what fees specifically apply to you and the variable annuity you are interested in.

Variable Annuities Can Benefit You

Now you have a basic understanding of variable annuities and how they work. Talk to your agent today about variable annuities and why preparing for the future is always a smart idea.

What are Variable Annuities?
Variable annuities are a kind of fusion of insurance and mutual funds, so before you really meet variable annuities, it’s probably good to know what annuities and mutual funds are