Immediate variable annuities are easily started with a lump sum. You will begin to receive your monthly payments right away. These payments will rise and fall, depending on the performance of your investments. Some contracts offer a guaranteed lifetime income and a death benefit when you pass away.

Immediate variable annuities are an attractive option for investors that are willing to accept the risk of the stock market. In return, you are given a guaranteed income, a check that grows as your investments perform well and you can beat the cost of inflation. Fixed annuities do not offer these benefits.

This annuity type is ideal for those of retirement age. If you aren't close to retirement it is better to fully maximize your 401(k) plan first.

Due to the risk of variable payouts, many immediate variable annuities guarantee a percentage of your first payment. But the fee for an 80% guarantee can be as high as 1.5% of your initial investment. Without the guarantee, you can look to pay a 0.55% fee for the plan.

Variable life and variable annuity sub-accounts: The more the merrier?

When you invest in a variable life insurance policy you have many choices to make.

Many life insurance companies offer numerous sub-accounts with their variable annuities. The sub-accounts are the investment choices you can make. They are similar in nature to mutual funds.

There are many options in diversifying your variable annuity with many of the sub-accounts featuring aggressive growth funds. You should choose your sub-account investments wisely, as the cost of keeping a variable life or variable life insurance policy can be quite high.

What are sub-accounts?

When you purchase a variable universal life insurance policy, your premium payments go into a separate account, which consists of variable sub-accounts. These sub-accounts are used to invest your premiums into underlying portfolios. The portfolios are made of stocks, bonds and money market instruments.

Due to the fluctuation of the investments, your cash value will fluctuate. Fees will be subtracted from your cash value to pay the policy's monthly charges. The fees include a charge for the cost of your life insurance. The policy is in force as long as the cash value of the policy is enough to pay the monthly charges.

You can withdraw part of the cash value or loan against it, but enough money must stay in the cash value to pay for the monthly charges. If the money starts to run out, the insurer will ask that you pay higher premiums or surrender the policy. The performance of your sub-accounts is essential to keep your policy going.

When you purchase a variable annuity, your money is invested into a separate account made of variable sub-accounts. When you annuitize your annuity and begin to receive payments, the payments you receive will be based on the performance of your sub-accounts. If they do well, you are paid well. If they do poorly, you are paid little.

The risk of variable products

There are thousands of sub-accounts for variable life, variable universal life and variable annuities. These sub-accounts give consumers a wide array of fund choices for diversification.

Experts say that diversification is the key to protecting your investments. You should consider splitting your investments between conservative sub-accounts and more aggressive ones.

Most importantly, your annuity should represent your individual needs. If you are older, you may need a more conservative allocation. If you are young, you may have time to be aggressive.

Insurance specialists do warn against investing in too many growth funds. Your life insurance policy isn't the best investment option you have.