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Annuity Variable: Good Or Bad

While fixed annuities promise a guaranteed return to the annuitant for a specified period of time, with variable annuities your returns per interval may vary between very high, medium, and none at all. In fact, variable annuities behave much like mutual funds, where the investment is divided into a portfolio of high-risk, high-gain investments in the stock market and hence, are often called "mutual funds with an insurance wrapper". The returns that the annuitant receives from variable annuities come directly from the gains or losses earned by these investments in the stock market. Since annuities should be selected as per the different and typical personal financial cases, a variable annuity might be good for a middle aged investor with a broad portfolio of investments in varied sectors, whereas for an investor nearing retirement age or with the intention to invest in secured instruments, a fixed investment might suit better. It is difficult to say whether a variable annuity is good or bad, but it depends on the typical investor. We, rather, will give the pros and cons of variable annuity here.

How such risky investments can be good?

As fixed or equity-indexed annuities, variable annuities too offer tax deferral on investment gains.
Like fixed annuities, if you have selected a variable annuity for life, you may receive monthly payments from the insurance company for the rest of your life. If you have selected to receive this payment for a certain period, you are promised a return for that period. However, unlike fixed annuities, the amount of this return is variable.
At times, variable annuities can prove to be very useful as a savings tool.
Variable annuities are divided into sub-accounts that are linked to the various stocks. This allows the investor to change the investment plans for each account easily and at a lesser cost.

Why, then, are the variable annuities not considered as good as the fixed annuities?

One thing you have got to understand is that – once you have decided about an annuity and signed the contract, you cannot any more negotiate or change the clause that may prove ‘not so beneficial’. Variable annuities are complex and sometimes include hidden clauses and costs. If you have missed a point, you have lost the game.
Since the annuities are irrevocable, if you at all plan to withdraw money from your account before reaching the retirement age or surrender it, you have to pay a substantial amount to taxes and penalties charged against you. In all, they may not make you a winner.
A typical disadvantage of variable annuities, unlike fixed annuities, is the huge costs associated with it. Since these annuities promise more returns, it demands higher service charges. Apart from these, there are the surrender charges, the commissions, the insurance charges, and so on.

If you are buying annuities, you focus on doing your homework well. It’s important that you find out relevant and reliable information and compare the quotes before deciding on the investment. If you can’t devote to understanding the contracts yourself, it is better to select reliable and efficient investment professionals. You may consult the annuity experts at AnnuityLibrary.com. For help, advice, and more fixed annuity information, Click here or callthem toll-free at 1-800-998-4056.

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