3.5.8.2. Variable Annuities
A variable annuity is one in which distributions to the investor will change from one period to the next because some or all of the client’s contributions are invested in securities that vary in value. The annuitant usually chooses from several separate accounts that operate like mutual funds. If the investments in the separate accounts perform well, the periodic payments to the client will be larger, but if they perform poorly, the payments will be smaller. Funds from variable annuities are kept in accounts that are separate from the insurance company’s general account. Because variable annuities invest in securities, the client can participate in the appreciation in the security’s value. This usually results in higher returns than fixed annuities.
A variable annuity has two phases.
1. In the first phase, the client invests money into the annuity account. This is called the accum