What two products make up a variable annuity?

A variable annuity is specifically designed as a contract between an individual and an insurance company that combines elements of insurance and investment. The first part, the insurance contract, provides a death benefit and the option for periodic payouts, which can be crucial for retirement planning. The second part involves investment components, and mutual funds are commonly used for this purpose.

By tying the contract to mutual funds, the variable annuity allows for the potential growth of the investment based on the performance of those funds, introducing variable returns as opposed to fixed returns. This combination of guaranteed insurance features and investment returns is what makes variable annuities a distinct product, allowing individuals to tailor their investment strategy within the safety of an insurance framework. This dual nature of variable annuities is what distinguishes them from other investment vehicles and insurance products.