Which statement describes a variable annuity?

A variable annuity is characterized by its investment structure that allows the annuitant to invest in various portfolios, which can include stocks, bonds, and mutual funds. The key feature of a variable annuity is that the payouts to the annuitant can fluctuate based on the performance of these underlying investments. This means that the amount received can increase or decrease depending on market conditions and the success of the chosen investment options.

The notion of variable payments is central to understanding how variable annuities differ from fixed annuities. While fixed annuities provide a guaranteed payout amount throughout the contract's term, variable annuities expose investors to the potential for higher returns — as well as the risk of lower returns — based on their investment choices and market performance. Therefore, option B accurately captures the essence of what a variable annuity is all about. The variability in payouts, closely tied to the investment risk taken, distinguishes it from other annuity types.