How a Variable Annuity Works
A variable annuity is a contract between an insurance company and the annuitant under which the annuitant makes either a single purchase or a series of payments in exchange for periodic payments back to the annuitant. A variable annuity offers a number of different investment options (e.g. stocks, bonds, money market instruments) and the income payments back to the annuitant can “vary” depending on the performance of the investments. Some of the basic benefits of a variable annuity may also include a tax deferral, a nursing home waiver, and a terminal illness benefit. There are two phases in the life of a variable annuity: an accumulation phase and a payout phase.
It is important to note that a variable annuity is meant for long-term investors to meet long range financial goals, including retirement. Taxes and other fees associated with early withdrawals typically discourage investors with short-term horizons from considering investment in a variable annuity.
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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.
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