Variable Annuities-Knowing the Ins and Outs

Majority of the investment and retirement plans of most Americans include a variable annuity. With this, it is important that before you buy a variable annuity, you should get to know the basics about what it is, how it works, what charges you need to pay and other important information that you need to get from your insurance agent, financial planner or broker. This is vital so you will know whether the variable annuity you are going to buy is right for you or not.

A variable annuity is a contract which you enter with an insurance company, and where the company makes periodic payments to you beginning at a date you both agree on. You can buy a variable annuity contract through a single payment or a series of payments. With variable annuity, you will have a wide range of options for investments, and this could be in the form of mutual funds.

The best thing you must do is to ask for a brochure from the insurance company and go over it carefully. A brochure should show complete information about the whole annuity contract and should cover your options for investment, costs and charges, death benefits and the annuity payment plans and payouts. Leaf through the brochures so you would be able to compare with other types of investments available for you to chose from.

A variable annuity offers you several benefits, making you receive funds in periodic payments so that after your retirement, you or your designated beneficiary will be assured of still receiving funds for the rest of your or his life.

In the event of your untimely death, or before you started receiving funds from your insurer, your designated beneficiary can receive a specified amount or at least the amount of the payments you made.

Another benefit of variable annuity is that you don't have to pay taxes on the income and the gains you acquired from your investment. In short, it is tax-deferred, which is to your advantage.

One thing you must remember is that a variable annuity is designed for long-term investments. Think of this as your egg nest for your retirement because if you withdraw your money before the right term, you may be fined with heavy taxes and charges from your insurer.

You should also take into consideration the financial strength of the insurance company before you buy a variable annuity. You are going to put your hard-earned money into investment so you should know the company well to ensure that they could pay your benefits in the future. Also, make sure you understand all the charges and underlying expenses before you make the investment. Remember you did not pick up your money from the streets so it's wise to know what agreement you are entering into.