variable annuity
A variable annuity, as opposed to a fixed annuity, offers a wide array of investment options from which to choose from, opening the door to the possibility of far greater growth.
Some of these investment options include:
- Stocks
- Bonds
- Money market account(s)
A variable annuity can either increase in value or dip below the value that you invested. Both your principal and return can go down if your investment options add up to a loss. In essence, choosing a variable annuity option is much more of a gamble than a fixed annuity. There are some forms of variable annuity that offer a fixed option as a sub-account, freeing you up to have some safety/stability whilst at the same time taking a gamble on some of the other flex options such as bonds or stocks.
Charges associated specifically with a variable annuity:
- Surrender Charges: A surrender charge is basically like a type of sales charge that is issued after you withdraw money within a certain period of time following the purchase of the variable annuity. This charge will only be applicable throughout the "surrender period" which is generally around 8 years. The surrender charges will also decrease as the policy nears the end of the surrender period.
- Mortality & Expense Charges: The mortality & expense charge is a form of compensation to the policy provider who is assuming an insurance risk under the annuity contract. This charge is typically in the vicinity of 1.25% / year.
- Administrative Fees: This charge is associated with the minimal administrative costs associated with the upkeep of your annuity, such as record keeping. This charge is typically in the vicinity of .15% / year.
- Underlying Fund Expenses: The underlying fund expenses are related to the costs associated with side investment options such as stocks, bonds or money market accounts.
It is important that you clarify all associated costs before deciding on whether or not you wish to purchase a variable annuity.
Compare a variable annuity with a more conservative FIXED ANNUITY option
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