gif (1280 bytes) Q. What are variable annuities?
A. Variable annuity contracts are sold by insurance companies. Purchasers pay a premium of, for example, $10,000 for a single payment variable annuity or $50 a month for a periodic payment variable annuity. The insurance company deposits these premiums in an account which is invested in a portfolio of securities. The value of the portfolio goes up or down as the prices of its securities rise or fall. After a specified period of time, often coinciding with the year the purchaser becomes age 65, the assets are converted into annuity payments. These payments are variable, since they depend an the periodic performance of the underlying securities. Almost all variable annuity contracts carry sales charges, administrative charges, and asset charges. The amounts differ from one contract to another and from one insurance company to another. Fixed annuity contracts are not considered securities and are not regulated by the SEC.
