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Variable Annuity And Its Two Phases

As a unique kind of annuity, Variable Annuity works in a very unique way. You need to be properly informed about the way it works before you actually think of choosing it as an investment option.  Never rush into such an investment without proper knowledge of how it works.

Basically, Variable Annuity has two main phases. These are the accumulation phase and the payout phase.  Let’s examine them.

FindAnnuitiesThe Accumulation Phase

This is the period when you’re expected to make series of purchase payments. You have to also allocate the purchases to various investment opportunities such as bonds, stocks, and other mutual funds. The investment options give you the room to invest your money for real gain. You can decide to allocate some percentage of your purchase payment to bond fund. You may also decide to invest in the US stock fund or to international stock fund as well. You may also decide to invest only in one investment option if you wish.

The money you allocate to each of the investment options will either increase or decrease as time goes on.  This depends mainly on the performance of the fund over time.  Hence, it’s always important to invest in number of mutual funds at the same time. This will help you not to lose all your investment if anything gets awry. Chances are that some of the mutual fund investment will continue to increase while others may rise and fall at intervals. You’ll always gain if you diversify your investment.

Variable Annuity can give you the room to allocate some part of your purchase payment to a fixed account. This is different from mutual funds. The fixed account normally pays a fixed interest rate. The insurance company you work with may reset the interest rate on periodic basis but you’ll be sure of receiving a guarantee minimum.

Meanwhile, there’s always the need to source for pieces of information about investment opportunities before you invest your money. You can request for prospectuses about mutual funds in order to know more about the options before you invest.

There’s always the room to make some transfers during the accumulation phase. You can easily transfer your money from one investment option to another without paying any tax on the income and gains.  However, your insurance company may charge you some amounts for the transfer depending on the prevailing conditions. You may have to pay what’s known as surrender charges as you decide to make some transfers.

The Payout Phase

This is the period when you begin to receive your gains from the investment you’ve made. You can receive your initial purchase payments and the income/gains that have accrued from them. You may receive them as a lump sum or series of payments at regular intervals.

The payout phase gives you the room to choose when to receive payment. You may decide to receive the payment after a period of years or you can go for immediate payments which gives you room to receive payments few months after your initial investment. You can also choose lifetime payment option which gives you the room to transfer the payout to your beneficiary when you die.

It’s always good you be properly informed before making any move when it comes to Variable Annuity. Take your time to ask questions from a reliable financial adviser if you’re confused.