Variable Annuity

What is a Variable Annuity?

Variable Annuities  an investment product issued by an insurance company that allows the account holder’s balance to fluctuate with the stock and/or bond market.  A variable annuity is almost always issued as deferred variable annuity and only in rare occasions annuitized.  This means that the account balance will rise and fall with the selected market based choices, knows as “sub accounts.”  Sub accounts are very similar to mutual funds.

Benefits of Variable Annuities

• tax deferred annuity
• “insured” by the issuing insurance company
• greater potential growth vs. fixed annuity
• ability to annuitize your account balance at a later date
• create guaranteed life time income with added tax benefits
• tax deferred access to stock and bond market
• “Rider” benefits available

Basic Types of Variable Annuities

• Core – This product comes with the company’s standard surrender period, usually about 7 years.
• No Surrender – This product has no surrender period and hence no withdrawal penalties. However the annual fees are typically higher in exchange.
• Short Surrender – These products have a short surrender period, usually 3 or 4 years. But they also typically have higher annual fees and lower guaranteed returns.
• Bonus – A bonus annuity adds an additional percentage to your premium (often as high as 5%, so if you invest $100,000 your account value immediately goes to $105,000). But in return for this bonus, this type of annuity has the longest surrender period – typically eight to nine years.

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