When compared to a fixed annuity, what distinguishing factor does a variable annuity have?

A variable annuity is characterized by the fact that the investment risk is assumed by the purchaser. This means that the performance of a variable annuity is tied to the performance of underlying investment options, such as mutual funds, which can fluctuate in value. As a result, the payouts received by the annuitant can vary based on the performance of these investments. This contrasts with a fixed annuity, where the insurer guarantees a specified payout, regardless of market performance.

In variable annuities, the potential for higher returns comes with the inherent risk; if the investments perform poorly, the annuitant may receive lower payouts or even lose a portion of the principal. This feature makes the variable annuity appealing to those seeking growth potential, but it also requires a higher level of understanding and tolerance for risk.

The choices highlighting lower premiums, fixed payouts, and guaranteed returns do not align with the nature of a variable annuity, as they pertain more to fixed annuities, which offer more stability and predictability in terms of payouts and returns.