Variable Annuities
In contrast to fixed and indexed annuities is the variable annuity, often referred to simply as a VA. The funds a variable annuity owner deposits into his or her contract are directed into investment portfolios maintained by the insurer. These portfolios consist of a variety of stock, bond, and money market accounts and are similar to mutual funds. The performance of a variable annuity’s underlying investments determines the growth of the variable annuity: if the underlying investments perform well, the contract’s value increases; if the underlying investments perform poorly, the contract’s value may decrease.
Unlike fixed annuities, there are no guarantees associated with the values or the growth of a basic variable annuity1. If the investments in which the contract’s funds are deposited decline, then the value of the contract will also decline. The insurer does not guarantee any minimum rate of return. The attraction with a variable annuity is the potential for growth that is associated with the contract’s underlying investments. This potential is generally greater than that which can be obtained with fixed annuities or other conservative investments, such as certificates of deposit or government bonds.
1 It should be noted that while there are no guarantees associated with a traditional variable annuity design, riders can be added, for an additional fee, that can guarantee the contract will provide for a certain minimum amount for withdrawals or for annuitization.
For a free copy of the LIMRA September 2014 Update of The Facts of Life and Annuities click here.
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