What type of annuity provides flexibility in investment options?

A variable annuity provides flexibility in investment options because it allows the policyholder to allocate their funds among a variety of investment choices, typically including mutual funds, stocks, and bonds. This investment strategy means that the value of the annuity can fluctuate based on the performance of the selected investments, giving the annuitant the opportunity to potentially increase their returns.

In contrast, a fixed annuity guarantees a specific return and does not offer the same flexibility in investment options, as interest rates are set at the outset. An immediate annuity begins payments shortly after purchase, which typically also lacks the investment choice variety found in variable annuities. A deferred annuity may allow for investment selections, but the key characteristic that stands out in variable annuities is the active role the policyholder plays in managing their investment portfolio, allowing for greater potential for growth through various market investments.