HSA, Health Savings Account
Save thousands of dollars each year on your total healthcare expenditures. Compare side by side rates from Americas top rated companies
Variable annuities have become a part of the retirement and investment plans of many Americans. Before you buy a variable annuity, you should know some of the basics – and be prepared to ask your insurance agent, broker, financial planner, or other financial professional lots of questions about whether a variable annuity is right for you.
What Exactly Is a Variable Annuity?
The two broad categories of annuities are immediate and tax-deferred annuities. With an immediate annuity, you make a lump-sum deposit and the insurance company guarantees an immediate monthly payment until your death. The monthly amount is based on your life expectancy. This is the type of payout option that most states offer for lottery winnings.
With a tax-deferred annuity, you invest your money and watch it grow tax-deferred until you decide to take out your money. A tax-deferred annuity can have a fixed rate, or it can be a variable product with sub-accounts. It is this increasingly popular type, which uses sub-accounts to allocate your money among mutual funds, that we are going to investigate here.
Variable annuities are commonly called "mutual funds with an insurance wrapper".
In an all-in-one package sold by an insurance company, a variable annuity combines the characteristics of a fixed annuity with the benefits of owning mutual funds. Investors pay a premium to the insurance company, which then buys accumulation units under the investor's name.
Family of Funds
Many variable annuities offer more than one family of funds to chose from and within each family of funds you many chose from a variety of funds with different investment objectives. This allows you to diversify your investment portfolio to minimize risk and maximize your potential investment return. Unlike fixed annuities with guaranteed protection against loss of principal, your principal is at risk and subject to loss in value.
