Fixed Annuities Vs. Variable Annuities

Between fixed annuities and variable annuities, which is safer and which one is better or, which is more profitable? Such and similar questions arise in the minds of people who wish to put their hard-earned money to better use than just depositing it in an account. Here, is a small explanation on the concept of annuity, fixed annuities and variable annuities.
What is the problem with common accounts where we can deposit money? Simple, our hard-earned money stays stagnant and some small amount of APR (annual percentage rate) and gets accumulated on the sum of money that you keep in the account. There are some really nice ways, where you can safely invest and 'grow' your money. If you have heard about annuities, then you certainly must have heard about fixed annuities and variable annuities. Complicated terms and definitions, incomprehensible concepts will leave you confused.

About Annuities

Annuities are principally insurance contracts with a cover like a life insurance or an annuity contract The basic principle of a full-fledged life insurance is that it is a contract of indemnity that aims at safeguarding the financial well-being of a deceased surviving dependents. The income over investment is an accompanying condition that also safeguards the insured person's well-being when he or she is alive. A majority of the insurance companies however do not provide for a return on investment clause. The annuity is however is a contract, which in some case is synonymous to insurance contracts. The basic motive of an annuity is to increase investment for returns. In such a case, insurance or death benefit of an annuity is just an inclusion in the contracts. Thus though the two concepts have same meanings and almost the same mechanism there is a mild and subtle difference in the two, which is quite informal.

Fixed Annuities Vs. Variable Annuities

Now there are several conceptions about annuities that are going to be explained in this paragraph. Here are the brief precepts of the two annuities:
  • A fixed annuity is one where premium installments and the returns over those premium installments are fixed. The returns are paid in a fixed quantity and a fixed schedule.
  • Contrary to the fixed annuities, variable annuities have a minimum premium payment plus a provision for additional premium which would yield additional returns. The returns are based upon the portfolio net asset value (an index that mathematically changes as per the market conditions) multiplied by the total investment minus the overhead charges. The company assures the return of all initial installments plus a small assured return. Thus if you are willing to sacrifice a bit on the returns, then the winner in fixed annuity rates vs. variable annuities rates, is the variable annuity due to the option of being able to invest more.
When we discuss the fixed annuities compared to variable annuities, it must be noted that the returns include your payments plus earnings or the returns on investments. This is the principle meaning of growth of 'funds' or money. Some annuities have a kind guarantee which are basically some minor conditions that pay you more returns on some market happenings.

Some of the best companies that provide annuities of both kinds in United States include, AIG, Allianz, American General, American National, Aviva, Axa Equitable, EquiTrust, Fidelity, Genworth Financial, Hartford, ING, Integrity Life, Kansas City, Jackson National, Jefferson National, John Hancock, Lincoln National, Mass Mutual, MetLife, Midland National, Monumental Life, Mutual of Omaha, Nationwide Life, New York Life, North American, Ohio National, Old Mutual, Pacific Life, Presidential, Protective, Prudential, Riversource, SunAmerica, The Standard and Transamerical.

In frank words, both the annuities are good enough as long as the company which is providing the annuity is good. The fixed annuities provide a safe growth of money which is assured and also repaid on perfect time. The variable annuity however is that one which gives the annuitant a better and better chance of making profit from the said market conditions. This kind of annuity is good for people who want to take safe chances for more returns. Overall, both the annuities are quite good, but the rate or return on investment draws a thin line between the two.

A.M. Bes, Moody's, S&P, Fitch are four company ratings that are given to annuity providers and the annuity products that are provided by the companies. In case of confusion and further leads, you may check on these ratings.
Advertisement