What characteristic defines a variable annuity?

The defining characteristic of a variable annuity is that investors can allocate payments to various investment options. This flexibility allows policyholders to choose from a range of investment portfolios, such as stocks and bonds, which can lead to higher potential returns compared to fixed products. The value of the annuity can fluctuate based on the performance of the chosen investments, making it distinct from fixed annuities that provide guaranteed returns not contingent on market performance.

Investors appreciate this aspect because it allows for growth potential aligned with their risk tolerance and investment objectives. The ability to select and manage investments within a variable annuity creates opportunities for greater financial outcomes, reflecting the annuity's name—variable reflects the variability in returns based on investment performance.