In my last HUBPAGE on annuities, I focused mostly on lifetime annuities while dismissing variable annuities as simply bad. But after receiving some questions as to why they are bad, I decided to write a little more about variable annuities pros and cons.

One thing to understand about variable annuities is that there is no guarantee of principal. This means that if you withdraw your money early, you may have less than you put into it because the principal is not guaranteed. The full amount is only guaranteed to your beneficiary if you die. And when you die there is a mortality costs - that's right, they charge you money for dying! They will take a fee, which varies from plan to plan, but could be higher than 1% of your total account.

There are probably other fees as well, which might be higher than you imagined. These are supposed to be indicated clearly in the plan prospectus, but sometimes the information is buried and brushed over so be sure to read carefully). On top of all the fees for benefits there is probably an administration fee which charges from .15% to .40% of your account value.

On top of that, the broker or salesperson who sold you the plan will receive  an annual commission based on your plan, and this is subtracted from the value of your plan after all the other fees are taken away.

Connected to the first point about the principal not being guaranteed, it's important to know that stock market volatility can affect the value of your account.  

It is also important to understand that any growth in the value of your fund  will be taxed as income. Variable annuities do have the benefit of tax-deferred growth, but don't forget that your beneficiaries will be in charge of paying taxes on that growth.

The other benefit of variable annuities is the provision of consistent and reliable income no matter what happens. You will never go broke if you have an annuity payment coming that can cover your expenses. That is their main benefit - secure financial stability.