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How To Simplify Variable Annuities Comparisons

By Edited Apr 7, 2014 0 0

It can be a little complex to make a comparison of the different types of variable annuities. Nevertheless, there are some basic considerations. There are also optional riders that can be added according to an individual's particular circumstances. Each person has to decide what they want specifically from a variable annuity and then look at the various alternatives to find out what is best for them.

A variable annuity is designed to be a long-term investment. It is not appropriate if funds are going to be needed in less than seven years.

Ideally, the best variable annuities would have no front end loads, low management fees, flexibility in payment of premiums, low withdrawal fees, and a short withdrawal schedule

An important consideration is the types of money markets and mutual funds that a variable annuity plan has. They are known as sub-accounts. You would like to be able to choose amongst the most well-known funds such as Alliance, Janus, or Fidelity.

All variable annuities should offer the ability to move funds between sub-accounts with incurring any fees. The market and your views on risk are going to change from time to time and you want to be able to adapt to these changes by asset reallocation.

Every variable annuity has an annual management fee that is called a mortality and expense fee. It is normally in the range of 0.5% to 2%. If this seems high, remember that you are also investing in a mutual fund which has a management fee and this has to be passed on to the investor. Other fees vary by the benefits selected, the state where you live and by the insurance company.

There is flexibility of premiums with variable annuities. You can make a small premium at first and then make additional contributions when your financial condition changes.

Be aware of the early withdrawal terms of the plan. Most variable annuities have a withdrawal charge that will phase out over time. It can be as high as 8% initially and then gradually reduce to 0% over a five to seven year period. Every plan is going to be different.

In the event of an emergency need for funds, there will be a penalty-free withdrawal allowance. Most variable annuity plans will allow up to a 15% withdrawal , but again, each one is different.

A variable annuity plan is not guaranteed and is dependent on the financial strength of the offering company. Search through the top companies rated by A.M. Best, Moody's and Fitch.

The uncertain return of investments can be alleviated somewhat by living benefits. This could be as a guaranteed current income or guaranteed future income. There are a lot of versions for living benefits and some of them are complex. The primary isses are years of availability, the cost, and the amount of the guarantee.

Decide what you need from a variable annuity and then look for the plan that fits your needs. Compare the various offerings and try to make as similar comparisons as possible



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