A Variable Annuity is a unique investment product that provides tax deferral of interest and capital gains and the option of a guaranteed monthly income which you can not outlive.

Accumulation Period

During the accumulation period of a variable annuity all premium payments can be invested in either a fixed account or subaccounts or both. The fixed account earns a guaranteed rate of interest and your principal is also guaranteed and not subject to market fluctuations. Premiums invested in the subaccounts (mutual funds) have the opportunity to participate in the growth of the stock market however these funds are subject to market risk.

Historically it can be demonstrated that funds invested in a diversified portfolio of prudently invested stocks can outperform other investment options given enough time.

Distribution Period

During retirement funds can be withdrawn from the contract and the owner has several options to chose from.

Withdrawals may be made at any time from the contract, prior to retirement as well, usually with a minimum dollar amount and at the option of the owner.

Systematic Withdrawal Plan enables the owner to pre-authorize periodic withdrawals. The owners of the contract instructs the company to withdraw a percentage or a level dollar amount from the contract on a monthly, quarterly, semiannual, or annual basis. Checks are sent directly to the owner or can be deposited directly into the owners checking account.

Annuitization is one of the least utilized and often misunderstood options of a variable annuity contract. The owner of the contract may elect to allocate all or part of the value of the contract to either the fixed account and/or the separate account. Allocations to the fixed account will provide annuity payments on a fixed basis; amounts allocated to the separate account will provide annuity payments on a variable basis reflecting the investment performance of the underlying subaccount.

Fixed Account

The owner of the contract may transfer all or part of the value of the contract to the fixed account, sometimes called the guaranteed account, and elect to annuitize those funds. In essence the owner of the contract for a fixed dollar amount, purchases a monthly income which will be paid to him/her until death.

For instance a 68 year old male could receive a monthly income which would be payable to himself as long as he is alive, or to his beneficiary should he die within the first 10 years. This option is known as "Life Annuity with Payments for a Guaranteed Period", in this case the guaranteed period is ten years.

Contracts when issued include a "payout table" stating the minimum payout guaranteed by the company based on age and sex (according to state law). When the contract is annuitized the payout will be based on the higher value of the guaranteed amount stated in the table or the current values used at that time.

In this example according to the payout table, for every $1,000 which is annuitized under the "Life Annuity with Payments Guaranteed for 10 Years Option" the monthly payout would be $5.68. This is what was guaranteed at the time the contract was issue however the current payout rate which the company is using is $7.93. All payout rates are expressed as dollars per period (monthly, quarterly, semiannually, annually) per $1,000 dollars.

Therefore if this individual elected to annuitize $30,000 under this option his monthly payout would be $237.90 per month. This dollar amount is guaranteed to be paid to him as long as he is alive. Should death occur in the first ten years his beneficiary would receive the difference between 10 year of monthly income and the amount he actually received.

Separate Account

The owner of the contract may transfer all or part of the value of the contract to one or more of the subaccounts that are available in the separate account and elect to annuitize those funds.

For example if there were 12 subaccounts available in the separate account the owner could transfer $25,000 in to the Growth & Income subaccount and $30,000 into the International subaccount and annuitize each account. (Many times the subaccount may be referred to as the "Fund" or "Portfolio", ie: "International Portfolio".)

The difference between annuitizing funds in the fixed account and funds in the separate account is that funds in the fixed account produce a guaranteed income that will not change from period to period, funds that are annuitized in the separate account produce an income that will change from period to period based on the performance of the subaccount that the funds are placed in.