What determines the total value of benefits in a variable annuity?

The total value of benefits in a variable annuity is determined primarily by the market performance of the chosen investments. This type of annuity allows individuals to allocate their premiums among various investment options, such as stocks, bonds, and mutual funds. Since the returns on these investments can fluctuate based on the performance of the financial markets, the value of the annuity and the benefits it provides to the annuitant will vary accordingly.

When the investments perform well, the value of the annuity increases, potentially leading to larger payouts during the withdrawal phase or at the time of annuitization. Conversely, if the investments perform poorly, the value of the annuity can decrease. This characteristic is what differentiates variable annuities from fixed annuities, where benefits are based on a predetermined fixed interest rate established by the insurer, which does not consider market performance.

Thus, in a variable annuity, the investments chosen and their subsequent performance play a crucial role in determining the eventual benefits, making market performance the key factor for the total value of benefits.