Is a Metlife Annuity a Variable Interest Policy?
MetLife offers two different kinds of annuities: immediate and deferred. However, the term "fixed" and "variable" normally refer to MetLife's deferred annuities. MetLife deferred annuities are long-term contracts that are designed to help you save money for retirement. These annuities build value over time and guarantee an income to you when you elect to annuitize the contract.
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Types
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When you buy a deferred annuity from MetLife, you have the option of choosing a fixed annuity or a variable annuity. The fixed annuity pays a fixed rate of return on the savings you deposit into the account. The variable annuity earns a variable rate of return because you are allowed to invest your savings outside of the company's fixed interest account.
Function
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The fixed annuities earn interest based on MetLife's general account. The general account is comprised mainly of bond and bond-like investments. Because of this, MetLife guarantees a fixed rate of return. The fixed rate of return for your contract, however, depends on the year in which you purchase the annuity. If there are any changes to the interest rate over the term of the annuity, you will know about them when the contract is issued. A variable annuity uses mutual funds to generate interest on your savings. The mutual funds are a collection of stocks or bonds with a common investment objective. When the value of the funds rise, the annuity account balance rises. When the value of the funds drops, so does the annuity account value.
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Significance
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The significance of investing in a MetLife annuity is that MetLife's fixed annuity offers a special liquidity rider not found on most fixed annuities. This rider is a modification to the original annuity policy which allows you to access all of the money in the annuity account without paying a penalty from the insurance company. This is significant because without this rider, you pay a penalty in the form of a percent of your annuity account if you withdraw more than 10 percent of your annuity account balance. MetLife's variable annuity offers minimum death benefit guarantees that pay a death benefit when you die. This death benefit is equal to your annuity account balance, but is "locked in" so that as your annuity account balance rises, the death benefit increases. When the annuity account balance falls your account balance falls--but your death benefit remains the same.
Benefits
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The benefit of MetLife's fixed and variable annuities is that they provide unique features not found on other annuities in the marketplace. The annuity's cash accumulation is also not subject to income tax until you withdraw the money. This helps you build a larger retirement savings than if you invested directly in mutual funds or bonds.
Warning
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Make sure you understand your contract's surrender charges. These charges are not normally disclosed unless you are doing business with the company. Both fixed and variable annuities do come with surrender charges, however, and they will negatively affect your retirement savings if you try to cash out your annuity before the maturity date specified in the contract. Maturity refers to the amount of time you must hold the contract before you can transfer the annuity to another company or cash in the annuity.
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References
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