How Variable Annuities Work

Variable annuities are annuities that are linked to investments. In comparison to a fixed annuity, the rate of a variable annuity varies. Therefore, there are several ways in which one will receive from a variable annuity. Because of the varying return of the investment, no one knows how much the return of investment will be.

Upon using a variable annuity

If you want to use a variable annuity over a fixed annuity, you may do so with the following options:

  • there is a potential for an increased growth than that of a fixed annuity
  • the increased risk is affordable
  • new variable annuity products offer flexibility

Cost of variable annuity

A variable annuity has its own standard features to offer. But there will be additional fees if you add up some riders. Below are the following charges a variable annuity has.

  • Administration costs
  • Mortality and expense costs
  • Underlying investment costs
  • Rider costs for other rider selected

The cost of this annuity depends on the number of options selected. The higher an annuity will cost if there are many options attached to it. The only thing you have to remember is that if you do not need any of the benefits a variable annuity has to offer, then do not go for it. But if you want the add-ons for better benefits, then the costs can be worth it.

Understanding and buying a variable annuity

You have to make sure that the variable annuity is what you really need before buying it. If an adviser is telling you to choose a variable annuity over mutual funds, find out why.

Additionally, secure a prospectus. This will give you the right information you need about a variable annuity. It will have the full details about everything you need to know. Ask someone you trust if you find it difficult to understand.

 

Posted by Ardent Editor on Nov 10 2008 in Annuities

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