 
Health Insurance California >> Annuity >> Variable Annuity Variable Annuities A variable annuity has two phases: an accumulation phase and a payout phase. During the accumulation phase, you make purchase payments that you can allocate to a number of investment options. For example, you could designate 30% of your purchase payments to a bond fund, 40% to a U.S. stock fund, and 30% to an international stock fund. The money you have allocated to each mutual fund investment option might increase or decrease over time, depending up on the fund's performance. In addition, variable annuities normally allow you to allocate part of your purchase payments to a fixed account. A fixed annuity account, unlike a mutual fund, pays a fixed rate of interest. The insurance company may even reset this interest rate periodically, but it would usually provide a guaranteed minimum (e.g., 3% per year). Example: You purchase a variable annuity with an initial purchase payment of $20,000. You allocate 50% of that purchase payment ($10,000) to a bond fund, and 50% ($10,000) to a stock fund. Over the following year, the stock fund has a 10% return, and the bond fund has a 5% return. At the end of the year, your account has a value of $20,750 ($10,500 in the stock fund and $10,250 in the bond fund), minus fees and charges. Your most important source of information about a variable annuity's investment options is an effective prospectus. Request the prospectuses for the mutual fund investment options. Read them very carefully before you allocate your purchase payments among the investment options offered. You should also consider a variety of factors with respect to each fund option, including the fund's investment objectives and other policies, management fees and few other expenses that the fund charges, the risks and volatility of the fund, and whether the fund contributes to the diversification of your full investment portfolio. During the accumulation phase, another benefit is you can typically transfer your money from one investment option to another without paying tax on your investment income and other gains, though you might be charged by the insurance company for transfers. However, if you withdraw money from your account before years of the accumulation phase, you may have to pay "surrender charges.” In addition, you will also have to pay a 10% federal tax penalty if you withdraw money before the age of 59½. At the beginning of the payout phase, you will receive your purchase payments plus investment income and other gains (if any) as a lump-sum payment, or you may even choose to receive them as a stream of payments at a cyclic regular interval (generally monthly). If you prefer to get a stream of payments, you will have a number of choices of how long the payments will last. Under most annuity contracts, you may choose to have your annuity payments last for a period that you desire in advance (such as 20 years) or for an indefinite period (such as your lifetime or the lifetime of you and your spouse or few other beneficiary). During the payout phase, your annuity contract might allow you to choose between receiving payments that are fixed in amount or payments that differ based on the performance of available mutual fund investment options. The amount of each periodic payment would depend, in part, on the time period that you choose for receiving payments. Be aware that some annuities do not permit you to withdraw money from your account once you have started receiving cyclic annuity payments. In addition, some annuity contracts are planned as an immediate annuities, which means that there is no accumulation phase and you will start receiving annuity payments as soon as you purchase the annuity.
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