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Variable Annuities
Variable Annuities
A variable annuity is a contract between you and an insurance company,
in which the insurer agrees to make periodic payments to you, usually
at some future date. The value of your investment will vary depending
on the performance of the investment options you choose. These investment
sub-accounts are professionally managed and vary in risk strategies
and may include stocks, bonds, money market accounts, or a combination
of the three.
Although variable annuities are typically invested in mutual
funds, variable annuities differ from mutual funds in several
important ways:
First, variable annuities let you receive periodic payments for
the rest of your life (or the life of any other person you designate).
This protects against the possibility that you will outlive your
assets.
Second, variable annuities have a death benefit. If you die before
the insurer has started making payments, your beneficiary is guaranteed
to receive a specified amount – typically at least the amount
of your purchase payments.
Finally, variable annuities are tax-deferred. That means you
pay no taxes on the income and investment gains from your annuity
until you withdraw your money. When you take your money out of
a variable annuity, however, you will be taxed on the earnings
at ordinary income tax rates rather than lower capital gains rates.
In general, the benefits of tax deferral will outweigh the costs
of a variable annuity only if you hold it as a long-term investment
to meet retirement and other long-range goals.
With a variable annuity, you benefit with higher periodic payments
when your investments within the sub-account perform beyond expectation.
However, if your investments perform poorly or lose value, your
returns will also suffer and can lose value. One important point
to keep in mind is that with a variable annuity, you bear the
risk.
For your protection, please take time to review more information
on variable
annuities offered by the SEC at http://www.sec.gov/investor/pubs/varannty.htm#wvar
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