Variable Annuities

Variable annuities

Investment contracts whose issuer pays a periodic amount linked to the investment performance of an underlying portfolio.

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Variable Annuity

An annuity that provides the annuitant a small guaranteed return for the life of the annuity along with another return that depends on the performance of a portfolio. Like any annuity, the annuitant buys into a policy, either with a lump sum or premiums over a period of time. When the annuitant reaches a certain age or retirement (whichever is greater), he/she begins to receive payments. Generally speaking, the insurance company issuing a variable annuity invests the premiums in investment vehicles such as stocks or mutual funds. This exposes the annuitant to the risk that he/she will be stuck with a smaller return, but it also carries the possibility of a much larger return. See also: Fixed annuity.