Features of variable annuity Unlike the fixed annuity, the variable annuity has a variable return. Thus, appreciation in value of your investment is different in the case of every investor. There is no guaranteed rate of return as in fixed annuity. It is you who tells the portfolio manager of the insurance company where to invest your money. Each owner of the variable annuity makes a different decision. So the return also is different. The investor need not put all his money on the same equity. S/he can allocate the money for different equities on a proportion decided by him/her.
The main advantage of variable annuity is that the decision making on investment is vested in you. You have full control over it. If you are a wise or lucky investor you make money on your decisions. The disadvantage is that you are responsible for losses due to poor investment decisions. If you are lucky, the investments will grow at a rate much higher than the fixed income annuity. Otherwise, there is every chance to see the value plummets. In actual practice, in the long term, say 25 years or more, the return is seen as much higher in the case of variable annuities.
How to compare features While selecting an annuity scheme, the first priority must be for the company. The company must have a reputation for fair dealings. It must have high rating by rating agencies. Their past history on settlements on claims must also be considered. Premium protection is the guarantee to get back at least the amount you paid, even if losses were made due to poor investment decisions you made. It is wise to select an annuity with a premium protection. You will continue to get the annuity payment until the original investment is finished. An annuity, connecting the annuity payments you get with the then cost of living, is surely a better option.
Another feature you must look for is the joint and survivor benefit. It will entitle your spouse to receive annuity payment until death even if you die earlier. All annuity schemes make you eligible for tax deduction for the money you pay because it is a retirement saving. The tax becomes due only when you receive the annuity and the tax will be at the ruling rate when you receive.
How to compare fees There are several fees charged by the insurance company and IRS in the case of premature withdrawals. Such fees are different for different companies. Almost all companies charge a percentage of your capital, but at varying rates. IRS also charges a 10% penalty tax for taking out tax-exempted money. Other charges by the companies are Mortality and Expense Risk, Account Maintenance and on many other counts. Everyone who wants to purchase an annuity scheme must ascertain the possible fees from the company beforehand and compare them with those of the others.
Variable annuities are very helpful for most of the people. But for those who cannot exercise financial disciple it may end up in big losses.