Get the lowdown on a deferred variable annuity, and see if it's the right fit for you. By Kimberly Lankford, Contributing Editor May 1, 2010 Purpose: An investment product that allows you to participate in stock-market gains while protecting against losses.How it works: You invest in mutual fund-like accounts and an insurance company guarantees future payouts, regardless of market performance. Typical investor: Preretirees who want to grow their nest egg without fear of scrambling it. Features: Complicated product with ongoing fees averaging a steep 3% per year. Potential to increase your account value if market performs well. If market tanks, you can withdraw about 5% of guaranteed balance each year. Flexibility to cash out your investment after surrender period expires. To see if an immediate fixed annuity is a better fit, read Which Type Is Right for You?: Immediate Fixed Annuities.