Variable Annuities

Are you looking for investment options that bring you good returns and provide you tax benefits? Then annuities are a good option to consider. An annuity is a contract that a person enters with an insurance company. In return for the payment or payments of premium the insurance company promises returns. There are many types of annuities and these include the variable annuities. Variables annuities are unlike the traditional annuities and do not usually offer a guaranteed rate of return on the investment. There are several types of variable annuities but most involve investment in stocks, bonds and money markets. And thus variable annuities are fairly unstable and the investment carries a high risk.

Chief Characteristics of Variable Annuities:

Variable annuities do not guarantee the principal amount invested or a certain rate of return, and are dependent on the performance of the market. Hence it is only for investors who are willing to make high-risk investments. If the market does well then the investor’s principal amount would grow exponentially, and if the market sees a slump then losses too can be enormous.
Tax deferred investments: Variable annuities allow the investor to avoid paying tax today on the principal amount, as it is deferred until the individual receives money from the investment.
Tax free transfers in variable annuities: When you choose to reinvest money in other types of variable annuities then it doesn’t attract tax. Thus one is free to change one’s investment portfolio without worrying about paying tax.
Most variable annuities allow the investor to take out the money at any stage of investment. However there are also some variable annuities that have a fixed time period.
There are some variable annuities that provide a guaranteed death benefit. Thus in the event of the death of the investor the heirs will receive money from the investment.

Who should choose to invest in variable annuities?

Variable annuities are essentially for the investor who is looking for high returns and is willing to accept the risks associated with investing in the stock market. It is not recommended for people who are looking to create a nest egg for their retirement or for those who wish invest in annuities as a saving. If an individual wants to invest in variable annuities then it is suggested that he or she invest only a portion of their savings in variable options and the rest in more dependable annuities. If the investor is unaware of the ups and downs of the market and unable to analyse investments well then it is recommended that a variable annuity that offers professional management of investment portfolios. The rate of return of variable annuities is far higher than that offered by other annuities, CDs, etc, but the risk is equally high.

The primary advantage of the variable annuity is the high rate of returns it often gives but due to the risk factor it should be invested in after due consideration. However if an investor is determined to gain good returns from variable annuities, it is a good idea to invest only a small portion of earnings in variable annuities.

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