Variable Contracts - Introduction
Thanks to biomedical advances and greater health awareness, people in the 21st century are living longer. Between 1950 and 2004 alone, individual life expectancy rose by 10 full years, from 68 to 78 years! This may not seem like a problem, but to investors it is an increasingly serious issue that should cause great concern. Put simply, people in developed countries now face the possibility of actually outliving their financial resources. But your clients can protect themselves from running out of money while enjoying a longer, healthier life by purchasing a variable annuity.
There are actually two types of annuities: fixed annuities and variable annuities. You will see below why a variable annuity protects against inflationary risk in ways that a fixed annuity does not.
Like life insurance, a variable annuity (and a fixed annuity, for that matter) is a contract between an investor and an insurance company. In the case of life insurance, the investor puts money into the contract by paying a premium in return for payment of a certain face amount of money to a beneficiary if the investor dies. A variable annuity customer also puts money into an annuity contract, either all at once or periodically. However, that's where the similarities between life insurance and variable annuities end. Whereas life insurance protects a beneficiary against the untimely death of the policyholder, a variable annuity protects the annuity contract owner from the financial and emotional hazards of living too long!Fixed vs. Variable Annuities