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Variable Annuities Pros and Cons

By Edited Jun 24, 2015 0 1

A variable annuity is basically an insurance-related contract that involves your insurer paying you in designated payment intervals. You are able to choose whether or not you would like to get paid at the beginning of your contract or at a later date. Most people that have variable annuities either made one large purchase payment or many smaller payments to pay for it. Understanding variable annuities pros and cons is very helpful to people that own this type of annuity or are thinking about purchasing one.

The major "pros" of variable annuities have to deal with control over investments. You are completely in charge of the bonds, mutual funds, and stock options that you choose for your annuity. If you are a smart investor, you can stand to do really well with your variable annuity. Many people really like the fact that they have a ton of different investment choices. In most cases, people like the idea of getting mutual funds for their annuity, whereas stocks and bonds are less common options.

Variable annuities pros also include having the ability to choose whether you would like to receive a scheduled set of payments or a large payment at a date that you set in the future. Most of the time you will not be limited to the date that you choose; meaning you could choose a date several months from the day that you take out your annuity or a decade after it is taken out. You are basically given complete control over your assets and are required to assume financial responsibility.

The major "cons" that are associated with variable annuities have to do mostly with financial inexperience and making poor investment decisions. If you are not very experienced with choosing a good mutual fund and overseeing the prospectuses of various companies, then you are likely going to struggle and not reap many benefits of variable annuities. Another disadvantage with variable annuities is that you probably are not going to make much money if you schedule to start receiving your payments right away. Most people that are able to benefit from this kind of annuity postpone the date that they start receiving money so that they can maximize their financial gains.

Although variable annuities do not require you to pay any taxes until you start receiving payments (e.g. withdrawing funds), this is similar to many other retirement options. There are a lot of other retirement policies that are arguably better than a variable annuity. You are probably wondering about the death benefit associated with this kind of annuity. The truth is that you will need to choose a beneficiary (person to receive your payments) if you do not outlive your investments.

When looking at variable annuities pros and cons, it is fairly easy to understand that the cons certainly outweigh the pros. There is nothing wrong with having a variable annuity if you are financially mature enough to handle one, but most people are able to realize that there are a lot better ways to put their savings to use. This type of annuity usually relies heavily on the performance of the mutual fund market. If the market under-performs, you are not going to make the amount of money that you had hoped. Weighing the "pros" and "cons" before getting a variable annuity is going to be helpful in planning your financial future and making smart financial decisions.

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Comments

Dec 7, 2009 2:57pm
A1m0s
Best article I have seen on Variable Annuities.
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