A variable annuity is a contract with an insurance company where the cash value is invested in sub-accounts (similar to mutual funds). The cash value and income can increase or decrease based on investment performance. Variable annuities have the highest growth potential but also the highest risk. They are regulated as securities.
Key Points
- Variable annuity: cash value invested in sub-accounts
- Cash value and income can increase or decrease
- Highest growth potential but highest risk
- Regulated as a security — requires licensed securities representative
- Typically has higher fees than fixed or indexed annuities