What generally happens to the value of accounts in variable annuities?

In a variable annuity, the value of the accounts is directly linked to the performance of the underlying investments chosen by the policyholder. This means that as the market fluctuates, the value of the variable annuity will also change, reflecting gains or losses based on the performance of the selected investment options, which could include stocks, bonds, or mutual funds.

This setup allows for the potential for growth, but it also introduces a level of risk, as the account value can decrease if the investments perform poorly. Unlike fixed annuities, where the payout amount remains stable, variable annuities offer the possibility of varying returns based on market conditions. Thus, the correct understanding of variable annuities is that their value fluctuates with investment performance, making it essential for investors to pay close attention to their investment choices and market trends.