What distinguishes a variable annuity?

A variable annuity is primarily characterized by the fact that its payments are linked to market performance. This means that the value of the annuity can fluctuate based on the performance of the underlying investments, which may include stocks, bonds, or mutual funds. This variability allows the investor to potentially receive higher payments when the market performs well, but it also carries the risk of lower payments if the market does poorly.

This feature is what differentiates variable annuities from other types of annuities, such as fixed annuities, where payments remain constant and are not influenced by market conditions. The connection to market performance also provides the opportunity for growth, as the investor can benefit from potential returns on their investment in a way that is not possible with fixed payouts.