A tax deferred variable annuity is an insurance and a security product, governed the department of insurance in each state and FINRA. Variable annuities generally have a two crediting methods: a guaranteed fixed interest rate account and separate sub accounts using equities and bonds investments. The adviser performs a risk tolerance assessment to determine the contribution allocation. Variable annuity separate sub accounts can lose money.
The policy owner places money into the contract by paying a premium. The premiums can be allocated to specialized insurance mutual funds called sub accounts. The investment performance of the sub accounts determines the cash surrender value of the annuities.
There are generally additional benefits associated with the annuity like refund of premium upon death meaning the insurance company will pay the beneficiary at least the premiums put into the contract by the contract owner. This is helpful if the investment performance of the annuity has declined and the contract is worth less than the money placed into the contract.
Additionally, many variable annuities have what are known as Guaranteed Minimum Withdrawal Benefits which offer certain guaranteed income benefits to the contract holder based on the cash value of the annuity.
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Variable annuities are complex financial products that can make sense for a very small subset of people. Typically a payment or series of payments are made to fund the policy. The funds are then typically invested in non guaranteed investments such as stocks or mutual funds. The reason they are variable is that the gains or losses will vary period to period, subject to policy specific caps. Fees tend to be higher with this type of policy. Depending on your objectives, you should be able to find better alternatives. As always consult with a trusted advisor.
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There are generally additional benefits associated with the annuity like refund of premium upon death meaning the insurance company will pay the beneficiary at least the premiums put into the contract by the contract owner. This is helpful if the investment performance of the annuity has declined and the contract is worth less than the money placed into the contract.
Additionally, many variable annuities have what are known as Guaranteed Minimum Withdrawal Benefits which offer certain guaranteed income benefits to the contract holder based on the cash value of the annuity.