ANNUITY PAYMENTS FOR VARIABLE ANNUTIES

2007-03-08 10:33:40

( Financial )



A variable annuity is an investment option which offers a wide range of investment choices. Its value varies according to the performance of the investment in the market. Mutual funds typically offer variable investments in stocks, bonds, securities and other money market instruments.

Variable annuities provide investors periodic annuity payments for the lifetime of the investor or his designate beneficiary. It will ensure to protect the investor in the event that he will outlive the value of his assets in the future particularly after retirement from work.

Death benefits are part of the one time annuity payments of variable annuity. The investor’s beneficiaries will receive an annuity payment equal to the purchase amount of the variable annuity if the investor died prior to the number of years specified in the annuity agreement.

Variable annuities are tax deferred wherein an investor will not be paying taxes from the income of the investment until he withdraws it. He can also transfer his money from one investment option to the other without being taxed. However, totally withdrawing your annuity investment in the short term will make your investment costly due to the ordinary tax charged for the withdrawal. Sometimes tax rules involved in variable annuity are complicated which might require the help of a tax advisor.

Accumulation Phase

Variable annuities have an accumulation phase wherein investor makes purchase payments on his choice of investment. The money will grow based on the performance of the investment. During this phase, investors can allocate part of their purchase payment a fixed account that pays a fixed rate of interest.

It is during the accumulation phase that the investors gather all the necessary information to select what investment options. In variable annuities suited for his financial needs. Selecting a fund to invest must require information on its investment objectives and policies as well as fees it charge and the volatility of the funds. Investors should know the various fees and management charges that are required in maintaining their investment in the fund.

It is also during the accumulation phase that investors can transfer their investment from one fund to another and not incur tax liabilities for doing it. However, a surrender fees will be charged for withdrawal of your money from your accounts if it is withdrawn during the early years of the accumulation period.

Pay out Phase

The pay out phase is where the investor receives annuity payments for his investments in variable annuities. Annuity payments cover purchase payment and investment income and other interest it earns from the fund. Most variable annuities contract stipulate annuity payments either as lump sum payment or series of payments at certain intervals.

Investors can choose how long he will receive annuity payments if he chooses for a series of payment at certain intervals. He can choose to receive annuity payments for his lifetime or the lifetime of his beneficiary. Just remember to make sure that the annuity payment meets your financial needs for the specific period.


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