Fees and Charges Associated with Annuities
Fixed Annuity Fees and Charges
When you invest in a fixed annuity, your money is placed in the general account of the insurance company. When setting the rate of return credited to the annuity contract, the company considers prevailing market rates and also the costs of issuing and maintaining the annuity contracts. In addition to the surrender charges discussed below, some contracts may charge an annual maintenance fee, which can range from $25 to $30.
Variable Annuity Fees and Charges
In addition to the surrender charges discussed below, variable annuities have other expenses you should be aware of as these expenses will reduce your return and, therefore, the value of your account.
-
Mortality and Expense Risk Fee (M & E) – typically 1.25% to 1.60% annually. This charge is equal to a percentage of your account value and can be used by the insurance company to offset the costs of distributing the variable annuity, such as commission paid to your Financial Consultant. It is also used to compensate the insurance company for certain risks that it assumes under the variable annuity contract.
-
Administrative Fees –a flat fee (perhaps $30) or a percentage of the account value (perhaps 0.5%.) The insurer may deduct this charge to cover administrative expenses such as record keeping. The flat dollar charge may be waived, typically on accounts above $50,000.
-
Subaccount Expenses – typically 0.5% to 1.5% annually. These fees and expenses, charged by the underlying investment managers in the variable annuity, are similar to the fees and expenses charged by mutual funds. These expenses include annual operating expenses such as management fees, distribution fees (referred to as 12b-1 fees) and other expenses.
Other Fees and Charges – Certain features offered in variable annuities such as additional death benefits, living benefits, and bonus credits often carry additional charges or lead to a higher Mortality and Expense Risk Fee. In addition, there can be a charge for transferring from one investment option in your annuity contract to another. The costs associated with variable annuities are generally higher than costs of mutual funds
Surrender Charges
If you withdraw money from or surrender your contract within a certain period of time after investing, usually three to nine years, the insurance company may assess a surrender charge. Usually this charge decreases and over time disappears altogether. For example, a surrender charge may be 7% if surrendered in the first year, 6% in the second year and so on until after seven years there is no surrender charge. Some annuity contracts impose surrender charges based on the initial purchqase, while others apply a new surrender charge period that applies to each subsequent premium or investment made.
Typically, contracts allow you to withdraw part of your account value each year without a surrender charge. This amount may be equivalent to interest earned or a percentage of contract value up to 15%.
A detailed description of the charges contained in a variable annuity can be found in the prospectus.
Additional information is available on the Securities and Exchange Commission website http://www.sec.gov/investor/pubs/varannty.htm
and the NASD website
http://www.nasd.com/stellent/idcplg?IdcService=SS_GET_PAGE&ssDocName=NASDW_005976&ssSourceNodeId=1108
|
What is an Annuity?
Site Map