What Control Will a Variable Annuity Give Me?

Fixed annuities combine preservation of principal, fixed returns and tax-deferred growth. This makes them a unique alternative to other taxable accumulation vehicles.

But what about investors who want more control over their annuities? What about investors who may be seeking greater long-term growth potential than that offered by fixed annuities? Fortunately, you have a choice. Variable annuities combine the tax deferral of fixed annuities with investment flexibility. This makes variable annuities a popular alternative for many types of investors.

A variable annuity is an annuity contract that provides variable rather than fixed returns. The key feature of a variable annuity is that you have control over how your premiums are invested.

When you pay your premium, you choose from a variety of different investment “subaccounts,” such as stock, bond, and fixed-interest options. Your premium can be allocated among these portfolios. Unlike fixed annuities, which pay fixed interest, the value of your variable annuity is based on the performance of the subaccounts you select. These subaccounts will fluctuate in value and may be worth more or less than the original cost when redeemed.

Variable annuities provide the dual advantages of investment flexibility and the potential for lower current taxes. The taxes on all interest, dividends, and capital gains are deferred until withdrawals are made.

When you decide to receive income from your annuity, you can choose a lump sum, or a fixed or variable payout. The earnings of the annuity will be subject to ordinary income taxes when you begin receiving income.

Variable annuities offer a host of benefits. They are suitable for using investment strategies such as asset allocation and dollar cost averaging. Variable annuities are flexible, and they can be tailored to suit the needs and objectives of just about any investor. And insurance companies offer a variety of services to make this financial strategy easy to implement and maintain.

As with other types of annuities, be aware of surrender charges and the 10 percent penalty for withdrawals prior to age 59¹/2.

Variable annuities are sold only by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

© 2006 Emerald Publications