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On my wife's 403(b) (like a 401(k)), she has an option to invest in a couple insurance funds. How do these work? Some seem to be low-risk, while others are moderate-risk. I'm just not quite sure how insurance policies are something that could be invested in.

  • Do you have an example fund name? I think that might help people answer your question. – Alex B Aug 5 '10 at 14:44
  • @Alex The Vanguard Variable Insurance Fund is the only one I can remember off hand - but there were a bunch. – Jeffrey Aug 5 '10 at 15:20
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    Strange.. When I research the Vanguard Variable Insurance Fund at Vanguard, I find this: "used solely as investment options for annuity or life insurance contracts offered by insurance companies." Sounds like it is an anomaly that your wife is offered the fund inside a 403b. – Alex B Aug 5 '10 at 17:35
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    are we talking about an annuity?... sounds like it, but not entirely clear.. – zpesk Aug 12 '10 at 3:47
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Sometimes 403b's contain annuities or other insurance related instruments.

I know that in many New York schools the local teacher unions administer the 403b plan, and sometimes choose proprietary investments like variable annuities or other insurance products. In New York the Attorney General sued and settled with the state teacher's union for their endorsement of a high cost ING 403b plan -- I believe the maintenance fees were in excess of 3%/year!

In a tax deferred plan like a 401k, 403b or 457 plan, the low risk "insurance fund" is generally a GIC "Guaranteed Investment Contract". A GIC (aka "Stable Value Fund") is sort of cross between a CD and a Money Market fund. It's used by insurance companies to raise short term capital. GICs usually yield a premium versus a money market and are a safe investment.

If your wife is in a 403b with annuities or other life-insurance tie ins other than GICs, make sure that you understand the fee structure and ask lots of questions.

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What is a 403b?

A 403(b) plan is a tax-advantaged retirement savings plan available for public education organizations, some non-profit employers (only US Tax Code 501(c)(3) organizations), cooperative hospital service organizations and self-employed ministers in the United States.

Kind of a rare thing.

A bit more here: http://www.sec.gov/investor/pubs/teacheroptions.htm under investment options

Equity Indexed Annuities are a special type of contract between you and an insurance company. During the accumulation period — when you make either a lump sum payment or a series of payments — the insurance company credits you with a return that is based on changes in an equity index, such as the S&P 500 Composite Stock Price Index. The insurance company typically guarantees a minimum return. Guaranteed minimum return rates 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. For more information, please see our "Fast Answer" on Equity Indexed Annuities, and read FINRA's investor alert entitled Equity-Indexed Annuitiies — A Complex Choice.

So perhaps "equity indexed annuities" is the more correct thing to search for and not "insurance funds"?

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