Which type of annuity provides payments that may fluctuate based on investment performance?

A variable annuity is designed to provide payments that can fluctuate based on the performance of underlying investments. In a variable annuity, the contract holder has the option to allocate premium payments among various investment options, typically a selection of mutual funds. As the value of these investments changes over time, so too will the payments the annuitant receives. This characteristic makes variable annuities distinct from fixed annuities, which provide guaranteed returns, and indexed annuities, which are linked to a stock market index but typically offer some level of principal protection. Immediate annuities, on the other hand, begin making payouts shortly after a lump-sum payment but do not inherently involve investment performance in determining the payout amounts. Thus, the defining feature of a variable annuity is its dependency on the investment choices made by the contract holder, leading to fluctuating payments.