Variable Annuities

For investors who don't want to see their annuities become paltry and withered through vitiating inflation, a variable annuity is the answer. Or may be. The payments made through this investment are directed into an account separate from the insurance company's general account from which fixed annuities are paid. The capital from many different variable annuity investors is pooled together in this separate account and then, much in the manner of a mutual fund, invested directly in stocks, bonds, mutual funds or mon link the performance of the annuity directly to the performance of the market. Variable annuities are considered securities because the investor takes on the risk (as opposed to fixed annuities, where the insurance company takes on the risk), and an insurance salesman must also be a registered securities dealer to sell this product.

Fixed income is still guaranteed through variable annuities, but the size of payment is expected to increase or decrease depending on how the separate account performs in the markets. For investors who seek the professional fund management and asset diversification one traditionally expects from mutual funds--along with protection against purchasing power risk--variable annuities are attractive options. However, it's important for investors to carefully weigh the risks and additional (money management) fees that are associated with this product. Because of their added risks and fees, variable annuities must be offered by prospectus to potential customers, wherein the investment strategies and trackrecord of the separate account are clearly disclosed. Investors should carefully consider their investment objectives, the risks associated with the investment, before purchasing variable annuities as part of their retirement plan.

Purchasers of variable annuities may choose either immediate annuitization or deferred annuitization.

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