What distinguishes variable annuities from other types of annuities?

Variable annuities are distinct from other types of annuities primarily because the owner has the ability to choose the investment options. This flexibility allows the owner to allocate their premium payments into various sub-accounts, which typically include a range of investment options such as stocks, bonds, and mutual funds. The performance of these chosen investments directly influences the value of the variable annuity, including both the cash value and the payouts during the distribution phase.

In contrast, fixed annuities provide guaranteed fixed payments over time and do not offer the same level of investment control. Additionally, variable annuities accumulate cash value based on the performance of the investments selected, which is also a key difference from options that do not accumulate cash value. Lastly, payments from variable annuities are not determined solely by fixed interest rates; instead, they fluctuate with the market performance of the underlying investments chosen by the annuity owner. This key feature—having the responsibility and opportunity to select the investment strategy—sets variable annuities apart from other types.