What is a characteristic of a variable annuity?

A variable annuity is characterized by its underlying equity investments, which means that the cash value and the income payments can fluctuate based on the performance of the investment options chosen by the annuity holder. These investment options typically include a range of mutual funds that can vary in stock and bond allocation. As a result, the value of the annuity can increase or decrease depending on market conditions, making it a more dynamic financial product compared to fixed annuities, which offer a guaranteed interest rate.

The potential for growth in a variable annuity is tethered to these underlying investments, allowing the policyholder to have more control over their investment strategy, as they can often choose from a variety of options that align with their risk tolerance. This inherent investment risk is a key feature that distinguishes variable annuities from fixed or indexed annuities, where values are generally more stable and predetermined.

In contrast, options related to guaranteed income for life, fixed interest rates, or predetermined withdrawal schedules are more characteristic of other types of annuities, such as fixed annuities or certain types of income annuities. Variable annuities focus on the potential for variable returns linked to market performance rather than fixed or guaranteed elements.