A specific financial agreement where there is a minimum, guaranteed payout from the annuity provider and a varying payout depending on market performance can be called variable annuity. This market performance element refers to stocks and other bonds where their performance in the market determines the rates of return and total income of the investor. The tax-deferred nature of such an investment makes it a viable one as well.
For a clever investor, it will always be the first choice in spite of so many other annuity plans like the Equity Indexed Annuity. Firstly, there is a great chance of sudden windfalls but this advantage does not come without any hurdles. One has to thoroughly study the market conditions and also gather information about the insurance firm with which he/she plans to deal with. Secondly, there is this huge advantage of passing on the annuity to the one’s heir, i.e child or spouse in case if his/her death, something that is not possible in the cases of Fixed Annuity schemes. In case of death or decease, the family or heir usually gets the full amount in the deceased’s account or in some cases, gets a specific yet assured portion of the same.
It has some disadvantages too. Returns and their rates are hugely dependent on stocks and other market fluctuations and this intensifies the risk level.
There are innumerable surcharge payments that you may have to make if you opt for such a plan. This has no connection at all to the value of your investment. Charges for surrender, mortality charges, expense risk fees and other administrative deductions are liable to be paid by the investor.
Taking into account all the benefits and disadvantages, you might consider going ahead and investing in a variable annuity plan especially if you want a bigger share in the stock market without much direct risk or involvement.