Which type of annuity provides payments based on the performance of underlying investments?

A variable annuity is designed to provide payments that fluctuate based on the performance of the underlying investments, such as mutual funds or other investment portfolios. This type of annuity allows individuals to allocate their premiums among various investment options, and the eventual payout will vary depending on how well those investment choices perform over time.

This investment component makes variable annuities particularly attractive for those looking to potentially increase their income through market growth, albeit with the risk of lower returns or losses when the market performs poorly. The flexibility to adjust investment allocations can also cater to changing risk preferences over time, further emphasizing the customized nature of variable annuities in comparison to fixed and guaranteed annuities, which generally offer more predictable but limited returns.