What Is a Variable Annuity?

A variable annuity is an insurance product that allows you to make a series of payments or a single payment and later receive regular income distributions. The unique feature of variable annuities is the potential for greater returns linked to the performance of investment portfolios, but it also carries a higher risk than fixed annuities.

Alright, alright, alright. So, let’s break this down now. Imagine you got a little nest egg and looking at how you can make it grow when you decide to hang up your boots. You’re thinking about annuities. They’re like a contract with an insurance company, right? They promise to hook you up with payments now or down the line.

But then there’s this thing called a variable annuity. It’s like the ‘wild child’ of annuities. You’re not just getting a fixed payment with a variable annuity, no siree. You’re taking that nest egg of yours, and you’re giving it some room to dance. Your money gets to play in the stock market or bond market, in what we call ‘subaccounts’.

The beauty of it? If your investments are strutting their stuff and doing good, you could see higher returns than a fixed annuity. That means more cash when you start making withdrawals.

But listen here. It isn’t all sunshine and rainbows. See, if your investments decide they’re having a bad day, week, or year, your returns can take a hit. That’s why they call it a ‘variable’ annuity – the returns vary, and they move up and down.

Oh, and there’s one more thing, a ‘death benefit.’ Now, if you were to leave this world a little too early, a variable annuity can give your loved ones a guaranteed payout, often the amount you put in or the account value, whichever is more.

But remember variable annuities, they’re a bit complex. They got all kinds of fees, surrender charges, mortality and expense risk charges, and management fees. Make sure you got your eyes wide open before you jump in.

So, that’s the 411 on variable annuities. It’s like a ride on the investment roller coaster within an insurance wrapper, offering the potential for higher returns, but with it comes higher risk and fees. Always sit down with a trusted financial advisor to determine if it’s right for you.

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