Variable Annuity Charges
When investing in a variable annuity, You will have to pay several charges. Before doing so, you should ensure that you understand all the charges because these charges will reduce the value of your account as well as the return on your investment. These charges include the following:
If you withdraw money from a variable annuity within a certain period after a purchase payment (typically within six to eight years), the insurance company will assess a “surrender” charge, which is a kind of sales charge. This charge is used to pay your financial advisor a commission for selling the variable an annuity to you. In general, the surrender charge is a percentage of the amount withdrawn, and declines gradually over a period of several years, known as the “surrender period.”
Mortality and expense risk charge
This charge is equal to a certain percentage of your account value, typically in the range of 1.25% annually. This charge compensates the insurance company for insurance risks it assumes under the annuity contract. Profit from the mortality and expense risk charge is used to pay the insurer’s costs of selling the variable annuity, such as a commission paid to your financial advisor for selling the variable annuity to you.
The insurer may deduct charges to cover record-keeping and other administrative expenses. This may be charged as a flat account maintenance f fee (usually between $25 and $30 per year) or as a percentage of your account value.
Underlying Fund Expenses
You indirectly pay the fees and expenses imposed by the mutual funds which are the underlying investment options for your variable annuity.
Fees and Charges for Other Features
Special features offered by some variable annuities, such as a stepped-up death benefit, a guaranteed minimum income benefit, or long-term care insurance, often carry additional fees and charges.
Other charges, such as initial sales loads, or fees for transferring part of your account from one investment option to another, also apply. Check with your financial advisor and have him explain all applicable charges.