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Variable Deferred Annuities

A variable deferred annuity allows the owner to invest in a range of investment funds, which exposes the owner to greater risk, but offers the potential for greater growth.

With a variable annuity, premiums are invested in the insurer's subaccounts - stock, bond and money-market funds - and the annuity's growth is based on the investment performance of those funds.

Separate Account
The variably annuity is characterized by a separate account that houses all of the variable account options. The separate account is so called because it is not part of the insurance companyy's general account asses. Within the separate account are the investment fund options or subaccounts that compose the variable annuity.

Actually, the separate account is maintained solely for the purpose of making investments for each contractholder. The carrier does not guarantee the separate account, except in the event of the owner's or annuitant's death. Account values fluctuate, depending specifically on the performance of the underlying investments. All profits and losses, minus fees, are passed along to the contractholder. In the highly unlikely event the insurance company becomes insolvent, the separate account is not attachable by the insurer's creditors and normally is distributed immediately to the contractholder.

General Account
An insurance company's general account houses all of its assets. Within the general account, the insurance company offers the fixed account option or options that complement the veriable annuity separate account choices. The fixed account can be structured in any number of ways, but it most frequently looks like a traditional fixed annuity, with multiple-year interest ratee guarantees. Many variable annuities offer fixed accounts with interest rate guarantees from 1 to 10 years.

In addition to a guaranteed rate of interest, the fixed account usually offers a guarantee of principal. This differs from the separate account. To provide the type of flexibility that is important to the variable annuity, the contractholder is given the right to transfer from the general account to the separate account and vice versa. Transfers from the general account to the separate account may require a market value adjustment and likely will be limited to a certain percentage of the amount in the fixed account.

Last Updated: 9/23/2012 10:05:00 PM