Variable Annuities
A variable annuity is a contract between an investor and an insurance company. When you purchase a variable annuity, you can make either a single purchase payment or a series of payments. Variable annuities are similar to mutual funds that invest in stocks, bonds, money market instruments, or even the three options combined. However there are several differences between variable annuities and mutual funds.
The first of these differences is that variable annuities allow the insured to receive payments for the rest of the life of the insured. The next difference is that variable annuities offer a death benefit, which means that in case of death of the insured before the insurance company starts to make periodic payments, the beneficiary receives a specified amount, which is normally at least the amount of the purchase payments. The biggest difference between variable annuities and mutual funds is that variable annuities are tax deferred, and you pay no taxes on the income and investment gains from your annuity until you withdraw your money.
Variable annuities are divided in two phases: an accumulation and distribution. During the accumulation phase, investor contributions - premiums - are allocated among investment options. Withdrawal of money from annuities during the early years of the accumulation phase you will incur tax penalties if you are under the are of 59 ½. The distribution phase is when you withdraw money, usually as a lump sum or through various payment options, such as monthly.
A deferred annuity is when the distribution payments are delayed to the future. If the payments begin immediately, you have an immediate annuity. As its name indicates, a variable annuity's rate of return is not fixed. It changes according to the investment options you chose to invest in (stock, bond, and money market sub accounts). Because they are similar to mutual funds, variable annuities are not necessarily safe investments. In fact, depending upon how the money is invested by the fund manager, they may be very risky. In this type of situation, there is no guarantee that you will earn any return on your investment and there is a risk that you will lose money. Because of this risk, variable annuities are securities registered with the Securities and Exchange Commission (SEC). The SEC and NASD also regulate sales of variable insurance products. Variable annuities may not be suitable for elderly investors. They also sometimes carry hidden costs and fees, and usually a large percentage of the amount invested is paid as a sales commission to the agent that sold them and this is a reason why they may be recommended.
If you think you may have been improperly sold a Variable Annuity, please call us at 1-800-306-6010 or contact us online.
The first of these differences is that variable annuities allow the insured to receive payments for the rest of the life of the insured. The next difference is that variable annuities offer a death benefit, which means that in case of death of the insured before the insurance company starts to make periodic payments, the beneficiary receives a specified amount, which is normally at least the amount of the purchase payments. The biggest difference between variable annuities and mutual funds is that variable annuities are tax deferred, and you pay no taxes on the income and investment gains from your annuity until you withdraw your money.
Variable annuities are divided in two phases: an accumulation and distribution. During the accumulation phase, investor contributions - premiums - are allocated among investment options. Withdrawal of money from annuities during the early years of the accumulation phase you will incur tax penalties if you are under the are of 59 ½. The distribution phase is when you withdraw money, usually as a lump sum or through various payment options, such as monthly.
A deferred annuity is when the distribution payments are delayed to the future. If the payments begin immediately, you have an immediate annuity. As its name indicates, a variable annuity's rate of return is not fixed. It changes according to the investment options you chose to invest in (stock, bond, and money market sub accounts). Because they are similar to mutual funds, variable annuities are not necessarily safe investments. In fact, depending upon how the money is invested by the fund manager, they may be very risky. In this type of situation, there is no guarantee that you will earn any return on your investment and there is a risk that you will lose money. Because of this risk, variable annuities are securities registered with the Securities and Exchange Commission (SEC). The SEC and NASD also regulate sales of variable insurance products. Variable annuities may not be suitable for elderly investors. They also sometimes carry hidden costs and fees, and usually a large percentage of the amount invested is paid as a sales commission to the agent that sold them and this is a reason why they may be recommended.
If you think you may have been improperly sold a Variable Annuity, please call us at 1-800-306-6010 or contact us online.
