A variable annuity is a tax-deferred retirement product that enables the investor to choose from a range of investments and then pays the investor a level of income during retirement that is determined by the performance of the chosen investment. An annuity has two elements-the principal, which is the amount paid in the annuity over a period of time, and the returns on that principal.
A variable annuity is a contract that the investor enters with an Insurance company under which the insurer agrees to make periodic payments to the investor or, in the unfortunate event of the investor’s death, the insurer shall pay the benefits to the beneficiary as per the investor’s wish. Variable annuities vary from fixed annuities because they do not offer guaranteed return assurances or minimum annuity payments.
Main Advantages of Variable annuities:
Main Disadvantages of Variable annuities:
Sale of variable annuities usually results in a higher commission for financial advisors and hence there could be a selfish monetary motive in pushing such products onto retail investors who may otherwise not require such a product.
Investors should read the prospectus carefully before investing in a variable annuity for a complete understanding of the risks, expenses, and charges.