How to mess up a variable annuity

Variable annuities are complex insurance products — so complex that what people actually buy and what they think they’re buying may be quite different. Those misunderstandings can end up costing them, or their heirs, a lot of money.

For the uninitiated: Variable annuities are insurance company contracts that allow people to invest money in a tax-deferred account for retirement. Returns can vary according to how the investments perform (that’s the “variable” in “variable annuity”). These contracts typically include death benefits guaranteeing your heirs will get the amount you’ve invested, and perhaps more. Many variable annuities also have living benefits, which guarantee the amount you can withdraw during your lifetime. All these guarantees come at a cost, which can make variable annuities expensive to own.

Sales of variable annuities have slowed in recent years but were still estimated at about $100 billion in 2018. Since variable annuities have a lot of moving parts, and function differently from other investments, it’s easy for holders to make a costly mistake. Such as:

Accidentally disinheriting someone

Insurance companies have different policies about how money gets paid out when someone dies, and variable annuity owners need to understand what those are, says Edward Jastrem, a certified financial planner in Westwood, Massachusetts.

For example, couples often own an annuity jointly, or name one spouse as the owner and the other as the “annuitant.” (The annuitant is the person whose life expectancy determines how much is paid out if the contract is “annuitized,” or turned into a stream of regular payments.) The cou

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