What is a Variable Annuity?
Learn the basics of variable annuities and whether they can help your investment portfolio. Variable annuities often aid in retirement plans.
A variable annuity is a type of life insurance plan that involves investments that turn into payments over time for the people who purchase these products. Once a rare type of annuity, many people now believe that a variable annuity is a good way to diversify one’s retirement portfolio.
Concept of a Variable Annuity
Overall a variable annuity works in the following way. You as a customer make a purchase from an insurance or financial planning company. You either pay a large sum of money at once or spread out your contribution over time. The company then invests the money in mutual funds, and at some certain time, you will begin to receive payments that come from the money the company made on your initial purchase.
The Death Benefit
The primary benefit of a variable annuity funds is what is called a “guaranteed” payment. That means that if the person who purchased the annuity dies before the payments begin, the person will receive a “death benefit.” This benefit gives a specified amount to the person who purchased the annuity despite how much money the company made on the investment. Many people see this death benefit as a good reason to put money into a variable annuity rather than other, riskier investment vehicles.
The Tax Status
A variable annuity also has the benefit of being a tax-deferred vehicle. Tax-deferred means that the money grows without the buyer paying taxes on the initial investment or any of the money earned until the person withdraws the money or begins to receive payments. Many people consider this tax-deferred status to be a benefit while others prefer vehicles that allow for tax-free withdrawals.
Related posts
- What Is The Difference Between A Mutual Fund And A Variable Deferred Annuity?
- Can I Get A Cash Advance From A Variable Annuity?
- How Does A Variable Annuity Work?
- At What Age Should I Buy Annuities?
- What is an Annuity?
Leave a Reply
Send this page to a friend ...
