What does 'capital at risk' indicate in variable annuities?

The term 'capital at risk' in the context of variable annuities refers to the fact that the invested principal is subject to fluctuations based on market performance. This means that the value of the investment can increase or decrease depending on how the underlying investment options perform, which typically include equities, bonds, or mutual funds. Unlike fixed annuities where the return is guaranteed, variable annuities allow account values to vary, and therefore the capital can be at risk due to market volatility.

This dynamic underscores the nature of variable annuities, which are designed for investors who are willing to accept some level of risk in exchange for the potential for greater returns. The notion that the invested principal can change with market performance directly ties to the variability of returns associated with the investment choices made within the annuity.