What type of annuity has a cash value that is based upon the performance of its underlying investment funds?

A variable annuity is designed to have a cash value that fluctuates based on the performance of the underlying investment options chosen by the policyholder, such as stocks, bonds, or mutual funds. This type of annuity allows for potential growth linked to market performance, offering the possibility of higher returns compared to fixed annuities, which offer a guaranteed return. In a variable annuity, the cash value isn't fixed; instead, it varies with the investment results, allowing policyholders to benefit from market upswings while also exposing them to the risks of market downturns. This characteristic distinguishes variable annuities from fixed and indexed annuities, which have either stable, predetermined return rates or returns linked to a specific index but not directly to the performance of various investment funds.