Choosing a Good Variable Annuity

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Every insurance company will tout one of their variable annuity products as “the best variable annuity”. With many different insurance companies out there, that makes for many “best variable annuities”. In reality, the terms of each product will vary widely. You should understand the different features and risks to decide if a variable annuity is right for you, and only then select a particular variable annuity. 

Variable Annuity: Things to Consider

There are three main components to take into account when choosing a variable annuity.  1) Performance of the managed investment account options available to you,  2) Costs and Fees of the managed account and the annuity component of the contract, and 3) the optional riders you select. You may find that the risks to your principal, combined with the costs and fees, outweigh all the potential benefits of the Variable Annuity.

Variable Annuity: Separate Account Performance

Variable Annuities are ‘variable’ because the principal may be invested directly in the stock market through mutual funds or other managed accounts offered by the insurance company issuing the annuity.   The hope of higher returns makes variable annuities attractive, however these investment accounts  all add layers of risk, and layers of cost, and are the main reason that Variable Annuities ofter under-perform fixed annuities.

Variable Annuity: Administrative Costs

Obviously you will want to find a variable annuity with low administrative fees.  As variable annuities give you the potential for market upside through various investment options, they are more labor intensive for the Insurance companies to manage.  Consequently, their fees may be higher, and are another reason why variable annuities may under-perform fixed annuities.

Variable Annuity: Optional Customization

Variable annuities may also offer various riders so that the owner can customize the annuity to his or her own needs and goals.  As variable annuities have grown in popularity, so have the menu of add-ons and riders available.  Each of these comes with cost, so be careful and don’t buy  options you don’t need.

Variable Annuity: Where to Get Help

Variable Annuities are securities products, and are sold through broker-dealer networks.  As we do not believe variable annuities offer an acceptable combination of safety, profitability, and flexibility, we do not often recommend them. There are other, more appropriate products however, such as the Fixed Index Annuity, to do offer appreciation upside with the guarantees of an annuity and are worth consideration