The Truth About Annuity Fees: What You Need to Know

Shawn Plummer

CEO, The Annuity Expert

When you are looking into buying an annuity, it is essential to know what fees will be charged. There are various fees that may be assessed, and it can be hard to keep track of them all. This guide will discuss the most common annuity fees and what you need to know about them. By understanding these fees, you will be able to decide whether or not an annuity is right for you.

What are typical annuity fees?

A few different types of fees are typically associated with annuities. These fees can include:

  • Management Fees: These fees cover the costs of managing the annuity. They are charged by the company administering the annuity and are generally a percentage of the assets in the account.
  • Mortality and Expense Fees: These fees are used to cover insurance costs. They are charged by the insurance company providing the annuity and are generally a percentage of the death benefit.
  • Surrender Fees: These fees are charged if you withdraw money from your annuity before a certain date. They are typically a percentage of the account value, and the length of time that they are assessed may vary.
  • Rider Fees: These fees are charged for add-on features that you may choose to include in your annuity. They can vary based on the features you select and may be a one-time fee or a monthly charge.

What are some of the other costs associated with annuities?

In addition to the fees charged, there are also a few other costs that can be associated with annuities. These include:

  • Commissions: Commissions are prebuilt into annuities by actuaries and do not affect the product’s performance. These are paid to the agent or broker who sold you the annuity and does not come out of your pocket. They are typically a percentage of the premium, and the amount may vary.
  • Premium Charges: These are charges that the insurance company assesses to keep the annuity policy in force. They are generally a percentage of the premium, and the amount may vary.
  • Withdrawal Charges: You may be charged a withdrawal fee if you withdraw money from your annuity before a certain date. This fee is typically a percentage of the account value, and the amount may vary.

Annuity Fees At A Glance

Variable
Annuity
Fixed Index
Annuity
Fixed
Annuity
Immediate
Annuity
Deferred
Income
Annuity
Principal ProtectionNoYesYesYesYes
Access To PrincipalYesYesYesNoNo
Control Over MoneyYesYesYesNoNo
Tax-Deferred GrowthYesYesYesNoNo
Guaranteed GrowthNoYesYesNoNo
Guaranteed IncomeYesYesYesYesYes
Inflation ProtectionYesYesNoYesYes
Death BenefitYesYesYesYes/NoYes/No
Long-Term Care HelpYesYesYesNoNo
Annual Fees2% – 4%0% – 1%0%0%0%

Typical Annuity Fees and Expenses

Immediate Annuity Fees

Typically there aren’t any standard fees affiliated with an income annuity, but an immediate annuity owner will take a reduction in an income distribution amount (paycheck) the more favorable the payout to you.

Deferred Income Annuity Fees

Typically there aren’t any fees affiliated with Longevity Annuities, but an annuity owner will reduce an income distribution amount (paycheck) the more favorable the payout to you.

Fixed Annuity Fees

With Fixed Annuity contracts, fees can come in the form of an interest rate reduction.

Fixed Index Annuity Fees

Annuity Rider Fees

With most fixed index annuities, annuity owners will pay for an optional feature such as an income rider, enhanced death benefits, or higher caps and participation rates. Depending on your benefit, fees can cost up to 1.75% of the account value annually.

For example, annuity companies offer an optional upsell to pay for more upside potential in your contract instead of the standard non-fee option.

Be aware of the fees in fixed index annuities as some riders or benefits are “built-in,” which requires the annuity owner to pay an annual fee, regardless of whether they want the rider/benefit.

Variable Annuity Fees

Variable annuities are different in terms of cost and can get quite expensive. First, you’ll pay higher fees with variable products, but that’s because they are investment products, not insurance products. Below are the standard investment management fees you’ll pay in a deferred variable annuity investment.

  • Mortality Expenses (M&E): M&E provides death benefits to your heirs. Investment fees can cost up to 1.5% of the account value annually.
  • Administrative Fees: This is a service fee for your retirement account. You can expect to pay up to .30% of the account value annually.
  • Investment Expense Ratio: An investment advisory fee for choosing various investment choices (stock and bond) called sub-accounts. Annuity owners can expect to pay up to 2% of the total value annually.
  • Guaranteed Lifetime Withdrawal Benefit: An income rider (Guaranteed Lifetime Withdrawal Benefit) fee similar to an index annuity’s income rider. Annuity owners can expect to pay up to 1% of the account value annually.
  • Enhanced Death Benefit Riders: An optional estate planning rider protects the annuity owner’s beneficiaries’ investment. The cost can be up to .50% of the account value annually. (Shop life insurance quotes instead)

Long Term Care Annuity Fees

Long Term Care Annuities charge the cost of insurance (similar to life insurance) for their fees based on age, health rating, and how many lives you’re covering. Sometimes, you can purchase additional bells and whistles that will increase the cost. Insurance charges come out of the account value annually.

Surrender Charges

Some would say that surrender charges are fees, but the reality is they are penalties. I’ve read how these charges are spun as “hidden fees” when there’s nothing hidden about them at all.

Deferred annuity contracts have surrender fees, while the single-premium immediate annuity does not because there is no cash value to surrender.

Fees Vs. Spreads

  • spreads: A spread is the percentage of gains the insurance company pockets first before distributing interest to the annuity’s account. Typically, you will not lose money in a negative environment.
  • Fees: Fees in annuities are charges that deduct from your account in both a positive and negative environment. You can lose money in a negative environment.

The Bottom Line

Fees are an essential consideration when purchasing an annuity. As you can see, various fees may be charged. It is important to understand all of the fees that may be charged before deciding whether or not an annuity is right for you. Contact us today for a quote, and we will help you find the best annuity for your needs.

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Frequently Asked Questions

Do annuities have high fees?

The fees associated with annuities can vary, but they are typically higher than those associated with other investment products (variable annuities). This is because annuities are complex products, and there are a variety of costs that go into them. However, it is essential to remember that not all annuities have high fees. Some annuities have low fees, and there are even some that have no fees at all. Therefore, it is vital to shop around and compare different annuities before deciding.

What annuities have the lowest fees?

There is no one answer to this question, as the fees associated with annuities can vary depending on several factors. However, some annuities that typically have low fees include fixed and indexed annuities.

Are there annuities with no fees?

Yes, there are annuities with no fees. These annuities are typically called “no-load” annuities. However, even though these annuities don’t have any upfront fees, they may still be other costs (like surrender charges). Therefore, it is essential to read the fine print and understand all the fees before purchasing an annuity.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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