What is the main feature of a variable annuity that differs from fixed annuities?

The main feature that distinguishes variable annuities from fixed annuities is the variable interest rates based on market performance. In a variable annuity, the return on the investment is not guaranteed and can fluctuate depending on the performance of the underlying investment options chosen by the policyholder, such as mutual funds or stocks. This means that if the market performs well, the returns can be higher, but if the market declines, the returns may decrease as well.

In contrast, fixed annuities provide guaranteed returns, meaning that the investor knows exactly how much they will earn over time based on predetermined interest rates. Immediate payout options and fixed premium payments are features that can exist in both types of annuities, making them less distinguishing when it comes to comparing the two products. Therefore, the variability tied to market performance is what fundamentally sets variable annuities apart.