Basically, a variable income annuity is a contract between you and an insurance company, whereby the insurer is agreeable to making periodic payments to you. These payments can begin immediately or at some future date. A variable annuity can be bought either by making one single payment, or a series of payments over a specific time.
Variable income annuities offer a range of investment options, the value of which depends entirely on the performance of the investment options you decide on. Investment options are usually mutual funds that invest in stocks, bonds, and money market instruments, or sometimes a combination of the three.
Variable income annuities allow you to receive periodic payments for the rest of your life, the life of your spouse, or any other designated person. Although variable annuities are usually invested in mutual funds, they are different to mutual funds in several different ways.
First of all, they allow you to receive periodic payments for the rest of your life, have a death benefit so that in the event of your death before the insurer has begun making payments to you, your beneficiary will receive a specified amount. Variable annuities are also tax-deferred, which means that you pay no tax on your investment until you actually withdraw the money.
The big thing to remember about variable income annuities is that it is a long-term investment for the sole purpose of meeting long-term and retirement goals. This means that should you withdraw your money early, there are substantial taxes and insurance company charges that you will be faced with.
The death benefits are a feature of variable income annuities. For instance, when you die, and have selected a person as your beneficiary, be it your spouse or your child, that person will receive all the money in your account, or a guaranteed minimum, whichever is the greater.
As far as the charges go on variable income annuities, there are several. Make sure that you understand all the charges that are involved, before you invest, as these charges will no doubt reduce the value of your account as well as any returns on your investment.
Of course, all the information to do with variable income annuity cannot possibly be included in this one article. It is therefore highly recommended that you discuss your intentions with a professional before committing yourself to this long-term investment.