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For investors who feel that a fixed annuity is too conservative and that a variable annuity is too risky, a combination annuity offers the annuitant features of both a fixed and variable contract. A combination annuity has a fixed portion that offers a guaranteed rate and a variable portion that tries to achieve a higher rate of return. Most combination annuities will allow the investor to move money between the fixed and variable portions of the contract. The money invested in the fixed portion of the contract is invested in the insurance company's general account and used to purchase conservative investments such as mortgages and real estate. The money invested in the variable side of the contract is invested in the insurance company's separate account and used to purchase stocks, bonds, or mutual fund shares. Representatives who sell combination annuities must have both their securities license and their insurance license.


An insurance company that issues annuity contracts may offer incentives to investors who purchase their annuities. Such incentives are often referred to as bonuses. One type of bonus is known as premium enhancement. Under a premium enhancement option, the insurance company will make an additional contribution to the annuitant's account based on the premium paid by the annuitant. For example, if the annuitant is contributing $1,000 per month, the insurance company may offer to contribute an additional 5 percent, or $50 per month, to the account.

Another type of bonus offered to annuitants is the ability to withdraw the greater of the account's earnings or up to 15 percent of the total premiums paid without a penalty. Although the annuitant will not have to pay a penalty to the insurance company, there may be income taxes and a 10 percent penalty tax owed to the IRS. Bonus annuities often have higher expenses and longer surrender periods than other annuities, and these additional costs and surrender periods need to be clearly disclosed to perspective purchasers.

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