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Types of Variable Annuities

Variable annuities are a type of insurance contract that offers flexibility in investment options, allowing policyholders to grow their retirement savings through various investments. Unlike fixed annuities, which provide a guaranteed rate of return, variable annuities invest the premium payments into a range of assets such as stocks, bonds, and mutual funds. This means that policyholders are exposed to market risks, but they also have potential for higher returns. Variable annuities often come with riders and features that can enhance their benefits, making them more attractive to investors.

Fixed Index Annuity (FIA) Linked Variable Annuity​

A fixed index annuity linked variable annuity combines the benefits of a fixed index annuity with those of a variable annuity. This type of annuity typically invests in a fixed index or a combination of indexes, such as the S&P 500, and provides a minimum guaranteed interest rate that is tied to the performance of these indexes. The policyholder can also choose from various underlying assets for their investment portion, offering flexibility in diversifying their portfolio. This hybrid approach aims to provide a balance between the stability offered by fixed index annuities and the growth potential of variable annuities.

Rider-Linked Variable Annuity​

A rider-linked variable annuity involves attaching additional riders to the basic variable annuity contract. These riders can enhance its benefits, such as adding long-term care or chronic illness provisions, increasing the death benefit, or providing tax-deferred withdrawals. Some common types of riders include:

  • Long-Term Care Rider: This rider provides a lump-sum payment for qualifying long-term care expenses.
  • Chronic Illness Rider: This rider offers benefits if the policyholder is diagnosed with a chronic illness that lasts at least two years, as determined by the insurance company's criteria.
  • Inflation Protection Rider: This rider adjusts the death benefit and any other guaranteed benefits to account for inflation, ensuring the purchasing power of the benefits stays ahead of inflation.

Rider-linked variable annuities can offer more comprehensive coverage, but they also come with additional fees. Policyholders should carefully review these riders and their associated costs before making a purchase decision.