Direct answer
A variable annuity is a tax-deferred investment vehicle where your contributions are invested in sub-accounts similar to mutual funds, meaning your account value fluctuates based on the performance of the underlying market assets. It works by allowing you to choose how to allocate your premiums, with the potential for higher returns offset by the risk of market losses.
Financial prospectus and product disclosure documents from annuity issuing insurance companies. For additional information about how these products function and the disclosures involved, see the U.S. Securities and Exchange Commission’s guide on annuities.
What this means for you
A variable annuity is a tax-deferred investment vehicle where your contributions are invested in sub-accounts similar to mutual funds, meaning your account value fluctuates based on the performance of the underlying market assets. It works by allowing you to choose how to allocate your premiums, with the potential for higher returns offset by the risk of market losses.
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