Top Variable Annuities

Annuities are contracts sold by insurance companies that guarantee a lifetime income to the purchasers for a set payment.  The payment can be a single payment or a periodic payment. Variable annuities can be described as annuity contracts with variable returns. The returns are pegged to the performance of the underlying assets in the annuity. Unlike fixed rate annuities, a variable annuity will consist of investment in a variety of mutual funds that meet the annuities selected investment objective. 

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Variable Annuity Overview

For instance if the annuity holder selected aggressive growth as their investment objective, the underlying mutual funds in the annuity will be those that offer the possibility of aggressive growth. There is no guarantee that the objectives will be met though. This is the difference between a fixed annuity which guarantees a minimum rate of return and the variable annuity.

If the stock market and the underlying mutual funds where the money inside the annuity is invested do well then the annuity will increase in value.  If not, it will decrease in value or just remain unchanged.  Variable annuities rarely remain unchanged unless they have special riders attached.

Special Guaranteed Income Riders on Variable Annuities

Many of the top variable annuities available currently offer riders that can be added to the annuity for a fee.  These riders may give a guaranteed return of principal or a guaranteed minimum income rider.  The purpose of these special riders is to counteract the effect of severe market downturns.  If you invest in a variable annuity and the market goes down for a long period of time, if you have one of these riders on your contract, you can at least be guaranteed to get your principal back or a minimum yearly income when you retire.

You should be sure that you completely understand what the riders available to you are.  Select the one that best suits your specific needs.  You may or may not be able to change the rider depending upon the contract. Typically you have to have the income rider on your contract for 10 years in order to active the benefit.  Again read the specifics on the contract you are considering to be absolutely sure of the specifics.

As mentioned earlier, these benefits have a cost.  You will pay anywhere from ½ % to 1% of the total deposit you put into the annuity to add these riders.  For the most part, these riders are some of the best features of the annuity contract because of the recent market volatility. 

Guaranteed Return of Principal Riders

Another type of rider that you may want to consider when purchasing your variable annuity is a guaranteed return of principal rider.  This means that if your account value is below the amount you originally invested at retirement, you are guaranteed to be able to withdraw a minimum of the original amount you invested. 

To take advantage of this benefit the rider usually has to have been on the contract for a minimum of 10 years before the benefit can be realized.  Be sure that you understand your specific contract before you purchase the annuity.

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Basic Benefits of a Variable Annuity

The obvious benefits of a variable annuity are the tax deferral of gains realized during the investment period.  If you invest $100,000 of after tax money into your annuity and ten years later the annuity if worth $250,000, you don’t have to pay taxes on the $150,000 gain until you start taking money out of the annuity.  Until you start taking money out, the gains can continue to work for you tax free. 

If you die before the distribution period starts your beneficiaries will receive the death benefit on your annuity.  This is usually the amount you contributed to the plan or the contract value whichever is larger.  The contract value includes any gains in market value of the annuity at the time of death.

A Couple of the Top Variable Annuities Available Currently

Ohio National Insurance Company currently offers one of the top variable annuities in the market.  They offer a rider that will guarantee a 5% per year increase in the income base on your variable annuity.  This means that if you invest $100,000 and the stock market goes down every year until you are ready to retire, your income base will go up by 5% per year until you retire.  At retirement, suppose it is 10 years out, you will have an income base of $100,000 plus 5% per year or $50,000.  Your retirement income will be 5% of $150,000 for as long as you live. 

Met Life is another company that has similar riders on their variable annuity contracts.  You will have to check with each company to get the exact rates and contract guidelines before purchasing your annuity as these guaranteed rates and riders change periodically.  The income rider described in this article may be somewhat different at the time you purchase an annuity so make sure your read everything on your contract before you purchase. These are just two names that have top variable annuities.  There are many other companies that offer variable annuities in the marketplace. 

Things to Look for When Selecting Top Variable Annuities

When making your selection among the top variable annuities in the marketplace, you need to keep a few things in mind.  One thing is to look at the variable annuity’s overall performance in the market.  Do they have average or above average market returns?  This is the first step in making a selection.

Look at the riders and guarantees that they offer.  In the current economic environment that we are in, having some type of guarantee is important.  If you just allow your returns to be whatever they are based upon the stock market returns, you may be disappointed when you are ready to retire. 

Also look at the expenses that your variable annuity will incur.  These are important because you want to come out ahead in the long run.  Typically they will be fairly competitive because there are a lot of companies in this market, but you need to check them out to be sure.

The final issue you need to make sure of is that the credit quality of the insurance company you are investing with is good.  If the quality is poor and the company may not be around when you retire, you may loose the benefits of some of the riders you have selected and paid for over the years.  Typically variable annuities assets are not directly connected to the insurance company, rather the individual mutual funds they are invested with.

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