The policy owner can select one or several pools and switch from pool to pool. The frequency of switches is restricted by the policy. If the investment results exceed the return projected when setting the annual premium, the premiums can be reduced or the face amount of the policy can be increased. Alternatively, premiums must be increased or benefits reduced if investment results are unsatisfactory. Whereas life insurance exchanged a lot of little payments for one big payout at death, an annuity contract exchanged a lump sum for a lifetime of guaranteed little payouts.
Deferred annuities offer the same guaranteed and non-guaranteed formats as life insurance policies.
During the accumulation period there is a small life insurance contract guaranteeing the principal for life regardless of investment results. Tax treatment of withdrawals from variable annuities differs from that for variable life insurance. The variable life policyholder can borrow cash values free of tax if modified endowment rules are avoided. The choice between variable annuity and variable life depends on the investor's profile. An older investor who has paid down the mortgage and educated the children can avoid the higher mortality charges and get a higher net return with periodic payout in an annuity.