Variable Annuities
A variable annuity is an annuity whose distributions are variable from one period to the next, because some or all of the investor’s contributions are invested in securities that vary in value. Funds from variable annuities are kept in accounts that are separate from the insurance company’s general account, often referred to as separate accounts. Within a separate account, the investor chooses from several possible subaccounts that operate like mutual funds. If the investments in the subaccounts perform well, the periodic payments to the annuitant will be larger, but if they perform poorly, the payments will be smaller. The investor rather than the issuer bears the investment risk.
A variable annuity has two phases:
- 1. In t