Variable annuities are a method of controlling the risk that a person may live long enough to run out of money. Life insurance protects an individual if he dies too early; and annuities protect an individual if he lives too long.

An annuity is a contract between an insurance company and an individual in which the insurance company agrees to pay a certain amount of money every month for the rest of a person's life, beginning on a certain date. When the annuitant dies the payments stop. This is true whether the insurance company paid the annuity for 1 month or 50 years.

The investor gives money to the insurance company. The insurance company puts that money in its investment portfolio. A 'Fixed Annuity' is one in which the insurance company takes the investors money, invests that money, and then agrees to pay the investor a specified and pre-determined monthly amount of money beginning on a certain date. A 'Variable Annuity' is one in which the investor agrees to let the amount of monthly payout depend on the performance of a specific insurance company portfolio. The payout will vary depending on the performance of the investment portfolio.

The individual does not need to retire for the payments to begin. There is no law that says payouts have to begin at a certain age. They can begin anytime the investor chooses. When payout begins, the amount that the Fixed Annuity holder receives will already be pre-

determined. The payout of the Variable Annuity holder will continue to vary based on the continued performance of the investment portfolio. This risk to the variable annuity holder is called investment risk. The period of time in which the individual is putting money into the annuity is called the Accumulation Period. The period of time in which the individual is receiving the payout is called the 'Annuity Period'. Because of the investment risk inherent in variable annuities, the SEC has declared them to be a security. Only a stockbroker (registered rep.) can sell them. Also, both types of Annuities are insurance products and the broker selling them must also have the appropriate insurance licenses. A fixed annuity is not a security. With a fixed annuity, the insurance company incurs the risk. No matter how badly their investment portfolio performs, you are still guaranteed a certain payout.

Normally, variable annuities are long-term in nature and used for retirement planning. Usually, the insurance company's objective with this type of investment portfolio is long-term capital growth. Normally, all the proceeds from the insurance company's policyholders goes into the 'General Account'. This general account is invested quite conservatively. However, the money received from variable annuity holders goes into a different account. This account is called the 'Separate Account'. The separate account is invested less conservatively than the general account.

B. R. Bowers & Company

122 East Maumee St.
Adrian, MI  49221
Phone: (517) 265-7683
Toll Free:  800-392-6230
Fax:  (517) 264-5095

3225 Walker Avenue NW
Suite 200
Grand Rapids, MI  49544
Phone:  (616) 784-0652
Fax:  (616) 784-0674

Email:  bryan@brbowerscompany.com

http://www.brbowerscompany.com