Variable Annuity

Variable annuities, common in the United States, allow investors to choose from a range of investment options, often called sub-accounts, similar to mutual funds. The value of the annuity rises and falls with the markets.

For example, an investor might place 200,000 in a variable annuity invested mostly in share funds. If markets rise strongly, the account grows; if they fall, its value falls.

Many variable annuities offer optional guarantees for an extra fee, such as a guaranteed minimum death benefit, a guaranteed minimum income or a guaranteed lifetime withdrawal amount, which provide protection against poor market performance. Growth is tax-deferred in the United States.

Variable annuities are often criticised for high and complex fees, including insurance charges, fund fees, rider fees and surrender charges, which can significantly reduce returns. They are regulated both as insurance products and as securities in the United States. Investors should compare the total costs with alternatives such as retirement accounts and low-cost funds.