How to Track Variable Annuity Sub Accounts


Variable annuities get bad press because of the fees associated with the product. Variable annuities are investments sold by insurance companies that house mutual funds under a tax-deferred umbrella. The added fees may count toward death benefit expenses, administration and compensation to brokers and agents selling the product. In addition to understanding fees, understanding how to track the sub account returns helps you determine if a variable annuity is a suitable investment.

Look at the prospectus of the variable annuity you own or are considering. There should be a list of sub accounts offered in the annuity. This list should name the mutual fund, give its corresponding stock market ticker symbol and tell you the inception date that the fund was placed in the variable annuity.

Notate the return on investment for each sub account you are interested in. You want to know the total return as well as the average return. For example, you may be interested in XYZ sub account, with an inception date of 5/05/02 with a total return of 9 percent but an average return of 5 percent.

The total return tells you how much your money would have appreciated if you invested it at the inception date. So in this case, $10,000 would have grown to $10,900. But the fund would have only averaged 5 percent over that period, giving you an idea about the volatility of the fund.

Look up the same mutual fund on any online investment resource site such as e*Trade, MorningStar or Schwab. Use the ticker symbol provided to you in the prospectus. If you do not have the ticker symbol, search by fund name, looking at the "C-class Shares" which have no load in or out.

Compare the inception date, average return and total return of the information found in Step 3 to that found in the prospectus in Step 2. You will find that most funds have a history longer than the inception date into the variable annuity. As a result, the total return and average return may not be similar at all.

For example, if XYZ mutual fund started in 1950, it may have a total return of 80 percent with an average return of 6 percent.

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