The difference between fixed and variable annuities is that fixed annuities guarantee a certain rate of return for a set period of time (it could be for a number of years, or for life). With fixed annuities, the insurance company takes on the risk to ensure that rate is paid to the annuity owner.
Variable annuities have the potential to return higher payments because they are invested in securities such as stocks, bonds, and/or money markets. However, they also have the potential to lose money (although there is usually a sub account offered that has a guaranteed return). The risk is on the shoulder of the annuity owner, not the insurance company.
Agent Owner, Gilmore Insurance Services, Marysville, Washington State
What are the differences between fixed and variable annuities? Well, the biggest difference would be the investment pool you work from. A fixed annuity investment choices are made by the insurance company and you receive a stated % return for that year. You don't have to do anything. A variable annuity shifts the investment risk onto the individual and they, not the insurance company (to a degree) decide what the annuity will be invested in. The Risk shifts to the insured and while the possibility exists to outgain the fixed annuity, the possibility of loss, even loss of existing balance exists. A variable annuity REQUIRES attention to a much great degree than a fixed.
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Variable annuities have the potential to return higher payments because they are invested in securities such as stocks, bonds, and/or money markets. However, they also have the potential to lose money (although there is usually a sub account offered that has a guaranteed return). The risk is on the shoulder of the annuity owner, not the insurance company.