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Variable Annuities

Variable annuities are agreements or contracts between a person and their life insurance company.  An individual agrees to pay the insurance company a one-time investment or payments in exchange for a regular flow of income or a one-time fee owed to the investors at a set time in the future.

The insurance company typically takes the money that a person gives them and invests it into one or many financial investment portfolios.  The success of the variable annuities directly correlates to the performance of the portfolio.  The money, in regard to variable annuities, is not taxed until it is extrapolated by the investor.  In many instances, investors can set up variable annuities to benefit someone else, especially in the event of the investor’s death before they have had a chance to collect on their investment.

There are two types of variable annuities:  Immediate variable annuities and Deferred variable annuities.  An immediate variable annuity, which provides a constant flow of income, is awarded in either fixed payments or variable payments immediately soon after the initial investment is made.   Deferred variable annuities are paid into and accumulate growth over time based on success of the portfolios vested in.  It is not distributed until a predetermined date in the future where the payments can be received all at once of spread out over time.  As far as tax purposes are concerned, taxes are paid on immediate variable annuity earning every time a payment is rendered to the investor.  With deferred variable annuities, the taxes are not due until the annuity reached its distribution period.

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