The commonest variable annuity fees are as follows:
1) Mortality Expenses: If you purchase a variable annuity, it is most likely going to come with a mortality and expense risk fee. This is a variable annuity fee charged by the insurance company to assume the risk of providing you with guaranteed future payments, taking into account the fact that future unexpected events (such as untimely death) could occur. The insurance company then prices these risks inherent to the structure of an annuity packages it into a charge for the annuitant. This variable annuity fee can range from .50 – 1.5% of the policy value per year.
2) Surrender charges: A surrender charge is a type of fee an annuitant must pay if he or she withdraws money from the variable annuity under the so-called “surrender period”. This is a set of time that typically lasts between 6 to 8 years and this charge tends to reduce the value of an annuity. Surrender charges were designed by annuity companies to stop an annuitant from cancelling the annuity contract before a set time so that they can recoup whatever costs they have incurred in providing the annuity. The potentially draconian nature of this fee is a good reason why annuitants must study the terms of their variable annuity before signing the contract.
3) Administrative Fees: These are regular fees that are charged to cater for the cost of administering the variable annuity. These are costs associated with mailings, record keeping, phone calls, fund transfer charges, etc.
4) Rider Costs: Riders are extra benefits provided by the variable annuity contract in the event of death. These are charged for by the insurance company.
Other variable annuity fees such as contract maintenance fees, premium taxes and investment expense ratios are also charged. The specific fees to be charged are usually contained in the variable annuity contract.
As a general rule, it is good practice to find out how much commission is being paid by the insurance company to the agent who is trying to sell the annuity. These commissions are always built into the variable annuity fees. So the lower the commissions, the less an annuitant can expect to pay in variable annuity fees.