Monday, January 10, 2011

Annuities – How Are They Regulated

An annuity is a long-time investment made to secure the financial future and supplement retirement income of the investors. Annuities are of different types such as fixed, variable and indexed annuity to satiate various needs of the individuals. Contrary to popular belief, all of them are not regulated in the same way. The investors must have a transparent idea regarding the regulation of annuities.

A fixed annuity is what earns a pre-determined interest during the period of accumulation. Income is paid by the insurance company to the investors at a fixed rate after regular interval. In case of variable annuities, the individuals invest into the mutual funds or other income-oozing vehicles. In this case, the figure of the payouts is determined in accordance with the performance of the mutual funds. Income from an indexed annuity is based on the performance of the financial index.

As the variable annuities are regarded as securities, so they are regulated by SEC, an abbreviated form of Securities and Exchange Commission as well as NASD, a trimmed format of National Association of Security Dealers. Some indexed annuities combine the features of both traditional insurance policies and securities. In that case, they are also regulated by the SEC. In order to provide the investors with protection against fraud, the SEC keeps an unblinking watch on security exchange, brokers and dealers, advisors and also monitors the mutual funds. In addition to SEC, the state department of insurance also has a role in regulating these annuities.

As the securities carry no guarantee about the steady flow of fixed income, so the annuitants may gain or loose on their investment. Therefore, prior to pouring money into these securities, the individuals must assess if they are brave enough to take the risk. The SEC also tries its best to make the investors familiar with the risk factors associated with such investment. The commission ensures that the investors get all the financial data and other information in detail prior to signing a deal.

A fixed annuity is safe to invest into as it spurts out guaranteed income, comes hell or heaven. For that reason, the fixed and majority of the indexed annuities are akin to the insurance products. The state department of insurance acts as the regulatory body in this case.

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