Variable Annuity with Minimum Guarantee

A variable annuity with minimum guarantee is popular among conservative investors. What is a variable annuity with minimum guarantee? A variable annuity with minimum guarantee usually has a clause that not matter what the stock market does, the variable annuity will guarantee a certain small percentage gain. Guarantees are what attract a lot of investors to investing in annuities. Many people are too risk averse so do not want to invest in the stock market. However, if they have the guarantee such as those that come with a variable annuity with minimum guarantee, they will be able to participate in the stock market and be able to sleep at night.

The drawback of variable annuity with minimum guarantee

The drawback of investing in a variable annuity with minimum guarantee is the fees. For having a guarantee, you usually have to pay extra fee on top of the basic annuity charges. This makes the variable annuity with minimum guarantee more 'expensive' than most other types of annuities. When the stock market is down, having a variable annuity with minimum guarantee is a good thing. However when the market is up, owners of a variable annuity with minimum guarantee find themselves earning much less than the market. This often upsets the owners.

The advantages of having a variable annuity with minimum guarantee

The guarantee is definitely an advantage. When the market is down, you know for certain that you will still earn a certain small percentage. When the market is up, you will probably earn a little more than the minimum guarantee, depending on the market. A variable annuity with minimum guarantee can have other attractive features such as death benefits. You need to consult the annuity prospectus for more details of what advantages are there.

Minimum guarantee or principal guarantee

For some annuities, the minimum guarantee can simply be the principal guarantee. That means the variable annuity promises to return all of your original investment less withdrawals. There may be a provision that the principal is only guaranteed if you do not withdraw from the annuity for a certain period of time such as 10 years.