If you purchase a Variable Annuity, the growth rate of your investment will not be fixed as it would be if you instead purchased a Fixed Annuity. Most variable annuities will not even come with a guarantee regarding the invested money and the value of your variable annuity can therefore drop below its initial purchase value. This means that variable annuities are riskier than other forms of annuities, but the value of your variable annuity can on the other hand also increase more.
When you purchase a variable annuity you can choose among several different investment options. Your own decision will therefore affect the overall performance of your variable annuity and it is important that you make a well informed decision and carefully consider the pros and cons of each type of investment. The most commonly available options when you purchase a variable annuity are mutual funds that invest in bonds, or stocks, or money market instruments. There are also a multitude of variable annuities that invest in a mix of all three. Even though your money will be invested in mutual funds, there are several differences between purchasing a variable annuity and investing directly in a mutual fund.
Just like all the other types of annuities, your variable annuity will provide you with regular periodic payments. Most variable annuities that are purchased as a form of pension will last for the rest of the purchaser\\\’s life. Couples will often choose a variable annuity that will continue to pay out money as long as one of them is alive in order to make sure that the widow or widower is financially secured for the rest of her or his lifetime. Purchasing a variable annuity instead of investing directly in mutual funds is therefore a way of guaranteeing that the money lasts during the life spans of the purchasers, no matter how many years that is.
Most variable annuities will also contain a so called death benefit. When you purchase your variable annuity you can name a beneficiary that will receive a predetermined amount of money if you die before the insurance company has begun to pay out your money. This amount will usually be at least the same amount of money as you have paid for your variable annuity. If you want your beneficiary to receive a death benefit, and to receive at least the purchase value even if your true account value is lower than the purchase value at the time of your death, you should always make sure that this is clearly stated in the contract when you purchase your variable annuity.
A third detail distinguishes the variable annuity from direct investments in mutual funds is the tax benefits. Since annuities are a popular way of saving money for old age in the U.S., those who purchase annuities can be entitled to certain tax benefits. The state wish to encourage private savings in the form of annuities, since the stable income provided by an annuity makes the receiver more self reliant and less likely to require state welfare. Most types of annuities are therefore tax-deferred under U.S. tax law. This means that you will