Four Alternatives to Variable Annuities

Equity-Indexed Annuities

With an equity-indexed annuity, during the accumulation period, when you make either a lump payment or a series of payments, you are credited with a return that is based on changes in an equity index, such as the S&P 500.

The provider typically guarantees a minimum return, the rates of which vary. After the accumulation period, the insurance company will make periodic payments to you under the terms of your contract, unless you choose to receive your contract value in a lump sum.

The most obvious advantage of equity-index annuities is the guaranteed minimum annual return. This safety net has led at least one analyst to call equity-indexed annuities a "variable annuity with training wheels."

Variable Life Insurance

Variable life insurance gives you the ability to invest the cash value of your policy into various mutual fund subaccounts offered by the insurance company. This can allow your cash value to grow more quickly so that your insurance policy can be paid up sooner.

You can usually switch your investment between funds with a phone call (typically limited to 12 free trades per year). And because you are using subaccounts, the cash value of your policy is not at risk in the event of a failure. The life insurance portion, however, is.

But remember: A variable life policy is a life insurance policy -- not a retirement savings vehicle like annuities. Therefore, the overall costs are going to be higher in order to pay for the insurance coverage you have purchased.