THE PROS AND CONS OF VARIABLE ANNUITY

Most American citizens choose variable annuity for different kinds of investment reasons. Variable annuity is a contractual agreement in which the premium is divided into separate sub accounts. In this investment, you make a lump of payment or series of payments. However, before you own such an account, you have to be abreast with the pros and cons of variable annuity and the risks and the benefits it holds.

Variable annuity is regarded as one of the best retirement planning ways by most folks. But before you delve into buying a variable annuity, you should have some lot of questions to be asked the insurance agent, broker, financial advisor or planner and other financial experts. Since variable annuity involves cash, to know the pros and cons of variable annuity would give you a clear understanding whether to go into it or not. The gains or the payouts of a variable annuity account are wholly governed by the performance of the market and the investment choice. The basis of this kind of annuity is that all gains and losses would be borne by your own pocket. Therefore, a thorough planning and understanding about variable annuities pros and cons is what is needed so as to realize maximum profit while at the same time eliminating loss or bringing it to minimal.

Before going into the pros and cons variable annuity, one should always bear in mind that variable annuities are meant for long term investments and are not the best for short term duration. In short term investments, early withdrawal of money attracts substantial taxes and charges.

As a pro of a variable annuity, unlike in a fixed annuity they are subject to rise. If the stock market and share rise, the money would also grow bigger. So a bigger income can be expected when the payments are made. Variable annuities offer periodic payments, death benefits and tax-deferred benefits. Periodic payments are ideal for retirement plans. The investor would receive periodic payments for the remainder of his life, from the insurer, as per the agreement. People go for variable annuity lest they should exhaust their assets. The death benefits that variable annuity offers is a very important factor. If the annuitant unexpectedly dies, before the periodic payments were made by the annuitant. In a case like this, the nominated beneficiary is liable to get at least the amount of the purchase payments. It is vital to note that the beneficiary would be eligible for the payment in the case the accounts value being lesser than the guaranteed amount. As a pro also, variable annuity has a tax deferral features. This means that no amount of tax being levied upon the investment until withdrawal at retirement. Money transfer from one investment to the other within the plan is also tax free.

The cons of a variable annuity includes that the it will decrease it’s value if the funds in  which the annuity is invested loses its value and the tax-deferred benefits would no longer hold useful if the annuitant avails another plan which offers tax benefits. Also, it is also accompanied with several
Charges that reduce the accounts value and the gain on the investment.

There are indeed numerous pros and cons of variable annuities. All you need to do is to seek the advice of a financial expert to guide you so as to reap the best from this investment vehicle.