Fixed vs. Variable Annuities

Fixed Annuities

 Fixed annuities provide a predetermined income or level death benefit payment amount each month for the life of the underlying annuitant. The annuitant can be the same person or a different person than the annuity owner. The annuitant will receive the same monthly income or fixed dollar amount each month for the duration of their life (unless they choose an inflation rider) when they annuitize, or begin to withdrawal funds from their fixed annuity. Fixed annuity account owners can choose survivorship options or no survivorship options, affecting whether the designated beneficiaries would receive capital upon the annuitant’s death. Fixed accounts offer only the general account, which is managed by the annuity company, offering a fixed rate of capital appreciation on the funds invested. Fixed annuities are considered to be more conservative than variable annuities due to the fixed rate of interest offered as an investment return.

Variable Annuities

Variable annuities offer the account owners the ability to vary their method and frequency of premium payment, the underlying investment choices of their funds during the capital appreciation phase and their withdrawal options during the annuitization phase. Variable annuities consist of two investment accounts, the general account and the separate account. When funds are invested in the general account, a fixed rate of interest is offered. Funds invested into the separate account can be invested in a host of equity products offered by the annuity company. These equity products can include stocks, mutual funds, cash and bonds. There is often a greater opportunity for investment return within a variable annuity as the funds can be self-directed into various equity accounts, but there is also a greater inherent investment risk associated with the upside potential.
Variable and fixed annuities each offer advantages and disadvantages for individual investors. Each investor should consider their overall financial plan, goals and objectives when determining if this investment option is best for their unique situation.



Source by david

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