A variable annuity differs from a fixed annuity primarily by what feature?

A variable annuity is characterized primarily by its investment in stocks or other equity-based securities, which allows the investor to potentially benefit from various market performances. This investment approach provides the opportunity for growth based on the performance of the selected investment options, typically including mutual funds or other stock-based investments. As the market fluctuates, so too does the value of the variable annuity, which contrasts with fixed annuities that provide guaranteed returns and fixed payment amounts regardless of market conditions.

In a fixed annuity, the insurer guarantees returns and provides fixed payment amounts over time, offering more predictability and stability. Similarly, lifetime income guarantees are features associated with both types of annuities, but they function differently under each scheme. The key distinction is that while fixed annuities ensure a predetermined rate of return and fixed payouts, variable annuities tie their performance to the performance of chosen investment options, which can include stocks. Thus, the essence of a variable annuity lies in its reliance on market-driven investments as opposed to the guaranteed structure of fixed annuities.