Want to know how a variable annuity works and if it's a good idea to buy one?
We asked the Securities and Exchange Commission for answers to basic questions.
We know: All About Variable Annuities
What's a variable annuity?
A variable annuity is a contract between you and an insurance company, under which the insurer agrees to make periodic payments to you, beginning either immediately or at some future date. You purchase a variable annuity contract by making either a single purchase payment or a series of purchase payments.
The value of your variable annuity will depend on the performance of the investment options you choose, such as mutual funds, bonds, or money markets.
How does a variable annuity differ from a mutual fund?
Variable annuities differ from mutual funds in several important ways:
How does a variable annuity work?
A variable annuity has two phases: an accumulation phase and a payout phase.
Are there fees and charges when I buy an annuity?
Absolutely. Be sure you understand what they are, and how much they're costing. Have these costs explained to you, and don't pay for things you don't need.
What else should I keep in mind about variable annuities?
Variable annuities are designed to be long-term investments, to meet retirement and other long-range goals. Variable annuities are not suitable for meeting short-term goals because substantial taxes and insurance company charges may apply if you withdraw your money early. Variable annuities also involve investment risks, just as mutual funds do.