How can an annuity protect me from a volatile market?

Annuities can be very effective in providing protection against market volatility.

There is a very good article on that site that discusses how owners of certain types of variable annuities have been insulated from many of the effects of the financial crisis.  That article can be found by clicking here.

Generally, the answer to this question depends on whether we're talking about a fixed annuity or a variable annuity.  With fixed annuities, the insurance company assumes market risk and the contract holder is generally insulated from market volatility or risk.  Pretty straightforward in most cases--the annuity contract value and annuity payments are fixed for the contract holder.

With a variable annuity, the contract holder does assume market risk so they are exposed to volatility.  However--and this is a big however--product development over the past several years has provided people with options that can be very effective in hedging against market risk.

These options come in the form of living benefits (which are also known as guaranteed living benefits).  As described in the site glossary, living benefits provide owners of variable annuities with income, accumulation, or withdrawal guarantees that can provide a significant measure of protection against market risk while the annuitant is alive.

Living benefits can be explored further in the site glossary.  The following is a list of some of these living benefits:

1) Guaranteed lifetime withdrawal benefit

2) Guaranteed minimum accumulation benefit

3) Guaranteed minimum income benefit

4) Guaranteed minimum withdrawal benefit