Business and Personal Finance Dictionary

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• VARIABLE ANNUITY
  
  Unlike the guaranteed rate of return you receive with a fixed annuity, the return on a variable annuity fluctuates with the performance of the underlying investments in your subaccounts. You can allocate your assets among the various subaccounts, which resemble mutual funds, offered in your annuity contract. For example, you could allocate 70% to a growth portfolio, 15% to a bond portfolio, and 15% to a fixed-income account. Variable annuities also provide insurance protection, promising that if you die before you begin to receive income, your beneficiaries will get at least as much as you put into the annuity, even if your underlying investments have lost money. This assurance encourages some people to invest their annuity assets more aggressively in the hopes of realizing greater portfolio growth. Another appeal of variable annuities is that you can move money among subaccounts without owing income tax on any gains. The downside is that the cost of added insurance protection, and the promise of a stream of income for life, can make owning a variable annuity more expensive than owning comparable mutual funds. In addition, withdrawals before you reach age 59 1/2 can be subject to a 10% early withdrawal penalty.
  
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