If you wish to invest in a variable annuity, you must know– what the product is, what purpose it serves, the special features of the annuity, the fees and charges payable, particulars of investments, death benefits provided, and encashment options. The variable annuity prospectus arms you with this data so that you can compare the costs and the benefits with other annuity schemes, investment avenues and mutual funds and decide what suits you.
What is a variable annuity prospectus?
A variable annuity prospectus is nothing but a document provided by the insurance company over viewing its variable annuity scheme, that helps a consumer understand the costs and benefits of its variable annuity contract. It educates the consumer, helping him to make a proper investment that suits his requirements.
What key information does it contain?
A variable annuity prospectus details all features that can be availed with the contract, data about fees and other expenses charged by the company and investment options. Financial data reveals the total funds allotted to each investment option referred to as sub accounts along with their past performance analyses.
The prospectus also clarifies how funds can be moved between sub accounts as you change your investment options. It shows how each sub account is linked to the stock market. You will find details regarding the actual objective of the investment, its fund manager and the method of investment applied.
Why is it important to read it?
In the US, Variable annuity contracts are registered securities products that are controlled by the Securities and Exchange Commission (SEC). It’s a statutory requirement of the SEC that a variable annuity prospectus should be made available to all consumers who sign variable annuity contracts. The prospectus is delivered in the printed format and mailed to the customer. It’s also posted in the company website for ready access.
It is also mandatory for the consumer to be informed about changes made in the investment options. The insurance company is required to circulate updates to variable annuity contract holders until new prospectuses are issued by the insurance company.
The general idea is to make the document as transparent as possible to protect the consumer from scams and frauds. It also serves to educate the consumer so he can make an informed decision.
Meeting all statutory obligations makes the annuity prospectus a scary big document, sometimes over 100 pages. Variable annuity purchasers get to review everything about the annuity contract to enable them to ensure that the contract fulfills the purchaser’s investment aims.
It is better to engage the services of investment professionals- the independent financial advisers (IFAs) – to analyze the information in the annuity prospectus and assist them to choose the variable annuity that suits their needs.
Variable annuities have gradually become indispensable tools in planning retirement and investment options. Ensure to obtain your copy of the variable annuity prospectus from the insurance company. Please take the time to read and understand the fine print so you get to safeguard your investment and avoid costly mistakes!