Dan Solin: The Lowdown on Annuities

There are many different kinds of annuities. I am going to describe the two most popular ones: deferred variable annuities and equity-indexed annuities -- and one that isn't popular but should be: fixed immediate annuities.

Deferred Variable Annuities

With deferred variable annuities, you pay the insurance company a lump sum. Your money is invested based upon your selection of the investment options provided by the insurance company. The invested funds grow tax-deferred until you start taking distributions. You cannot access your funds without a tax penalty before the age of 59½ .

Sales people gush about the "death benefit," which is guaranteed to be at least the total of the amount contributed, less any withdrawals. However, these are long-term investments. It is highly unlikely that when the insured dies, the account will be underwater.