Variable annuities can be defined as a contract between a client and an insurance company, under which the insurer agrees to make periodic payments to the client, beginning either immediately or at some deferred future date. The client or purchaser makes a purchase of variable contract by making either a single purchase payment or a series of payments.
Variable annuities have been long popular as retirement and investment plans. It is always better to know certain basics about variable annuities, before making the investment decision. One can get answers to questions on variable annuities from insurance agents, financial advisors, brokers, financial professionals. One has to carefully consider the particular annuity before making the purchase decision. Most insurance companies will give you a prospectus, if requested. Your financial advisor can go through the prospectus carefully and guide you on proper lines. The prospectus contains a host of information about the contract, investment options, death benefits, information on tax benefits. This information allows you to compare the benefits and cost of the annuity to other types of investments and come to a decisive conclusion.
A variable annuity offers its purchasers an entire range of investment options. The value of the investment varies depending on the performance of the investment options. Usually variable annuity means investing in low risk options like mutual funds, stocks, bonds, money market instruments and similar financial options.
Variable annuities allow you to receive periodical payments for the rest of your life. In case of premature death payments can be received by any other person you designate. In fact variable annuities come along with a death benefit. It guarantees your beneficiary to receive a specified amount. This feature protects you against the possibility of you outliving your assets, after you retire.
Variable annuities are also tax deferred. You pay no taxes on the income and investment gains from your annuity, until such time you withdraw your money. You can also transfer your money from one investment option to another within a variable annuity. In this case, you need not pay taxes.