Variable annuities offer a way to invest in stock funds, tax-deferred, but there is no certainty that stocks will provide superior returns. To alleviate this concern, variable annuities typically offer guarantees to cut the risks of investing in the stock market.
For many years, variable annuities have guaranteed a return of premiums paid, if the investor dies with a contract underwater. Say you put $100,000 into a variable annuity and die five years later. If the contract value is at $110,000, that’s what your beneficiary would get. However, if the contract value is $90,000 at your death, your beneficiary would receive your $100,000 investment.
This money?back guarantee has given way to a variety of escalation formulas. With these plans, the death benefit might be whatever is greatest:
* the amount contributed;
* the current contract value;
* the amount contributed accumulated at, say, a 5 percent interest rate; or
* the peak value of the annuity on a specified anniversary date.
Moreover, some variable annuities now offer “living benefits” that provide guarantees to investors as well as to their beneficiaries.