The explosion of variable annuity sales in recent years has spurred plenty of debate over whether many consumers understood what they were buying.

Whether pushy sales agents or unknowledgable customers are more to blame is a matter of opinion. What is certain, however, is that this market downturn has been a dose of tough love for millions of annuity holders.

Variable annuities are insurance products that allow holders to save for retirement. The tax-deferred return on the investment fluctuates with the performance of the underlying investments in separate account funds, sometimes called investment portfolios or subaccounts.

Those who bought variable annuities to meet specific needs with guaranteed results are feeling like kings of the world right now. They have been mostly insulated from the market downturn. These are the folks whose guarantees are at the heart of problems for companies like Hartford Financial ( HIG), Lincoln Financial ( LNC) and Prudential ( PRU).

But those -- and there are millions of them -- who bought variable annuities based on unrealistic expectations/promises of market returns with no guarantees are devastated.

First, it is necessary to explain a fundamental principal of variable annuities: The difference between the account value and the guaranteed withdrawal benefit value of the contract. The account value is the amount that you initially deposited plus or minus any earnings or losses from the underlying investments. After subtracting any surrender charges, this is the amount you get if you surrender the policy. The guaranteed withdrawal benefit value is different. It is the amount you initially deposited plus the guaranteed annual crediting rate. This amount cannot be withdrawn in a lump sum; it is the value from which guaranteed annual benefits are paid to you over time. Many people do not understand this distinction.

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