Legal Definitions - variable annuity

A variable annuity is a type of annuity that provides periodic payments to the recipient. The amount of these payments varies based on the performance of the underlying investments. This means that the value of the annuity can go up or down depending on how well the investments are doing.

Variable annuities are tax-deferred, which means that the recipient does not have to pay taxes on the income or investment gains until they withdraw the money. This can be an advantage for people who are looking to save for retirement or other long-term goals.

For example, let's say that John purchases a variable annuity with a starting value of $100,000. The annuity is invested in a mix of stocks, bonds, and other securities. Over the next few years, the value of the investments goes up and down. Some years, John receives larger payments from the annuity, while other years the payments are smaller. However, because the annuity is tax-deferred, John does not have to pay taxes on the income or investment gains until he withdraws the money.

Variable annuities are different from fixed annuities, which provide a set payment amount regardless of how the underlying investments perform.