Before purchasing an annuity, be aware that insurance companies might deduct fees from the contract value but vary by product. Not all annuities are created the same way so make sure to inquire about these charges or the breakdown below based on each type.

Immediate Annuity

Typically, there aren’t any fees affiliated with immediate annuities. Contingent on the options chosen–such as single life, joint life, or refund–you will take a reduction in the payout if more contingencies are added to the contract.

In addition, there are no surrender charges as immediate annuities can only be sold–either a portion or all–in the secondary market.

Fixed Annuity

Typically, there aren’t any fees affiliated with fixed annuities unless an optional rider–such as return of premium or liquidity–is purchased. Several insurance companies might even offer these features at no cost through an interest rate reduction.

Fixed annuities don’t have lifetime income or death benefit riders and surrender charges depend on the length of the contract.

Long-Term Care Annuity

Long-term care annuities charge the cost of the long-term care for their fees based on age, underwriting, and if insuring two spouses. The base contract is usually 1% and some insurance companies might offer additional features that increase the cost. Insurance charges come out of the contract value annually.

Surrender charges depend on the length of the contract and optional features such as inflation.

Indexed Annuity

Typically, there aren’t any fees affiliated with indexed annuities unless an optional rider–such as lifetime income or death benefit–is purchased. A lifetime income rider can cost up to 2% and a death benefit rider can cost up to 0.5%. Certain insurance companies might charge a fee for access to higher participation rates or a bonus. With the low interest rate environment, various insurance companies have added an annual fee on their indexed annuities but that is not the same with all.

For the majority, the optional riders can be removed after a set number of years but others are built-in, meaning you will pay for it regardless. Surrender charges depend on the length of the contract optional features such as a bonus.

Variable Annuity

In comparison to all other types, variable annuities have the most fees and expenses including:

• Mortality and Expense (M&E) Risk Charge: Provides a death benefit to your beneficiaries and return of premium if the contract value is lower than the original deposit (basis), which costs up to 1.5% of the contract value annually.
• Administrative Fee: A service fee which costs up to 0.3% of the contract value annually.
• Subaccount Fee: A fee for different mutual fund options, which costs up to 2%.

Surrender charges depend on the share classes, which include:

• A-share: No surrender charge but upfront sales charge (commission percentage of each premium).
• B-share: No upfront sales charge and surrender charges are typically 5-8 years with mortality and expense risk charge and administrative fees typically lower than L shares.
• C-share: No upfront sales charge and no surrender charge with mortality and expense risk charge and administrative fees typically higher than B and L shares.
• I-share (Fee-only): No upfront sales charge and no surrender charge with the lowest mortality and expense risk charge and administrative fees with ongoing asset management fee.
• L-share: No upfront sales charge and surrender charges are typically 3-5 years with mortality and expense risk charge and administrative fees typically higher than B shares.
• O-share: No upfront sales charge and surrender charges are typically 1-3 years with mortality and expense risk charge and administrative fees typically higher than B and L shares.
• X-share (Bonus): No upfront sales charge, has a premium bonus, and surrender charges are typically 8-9 years with mortality and expense risk charge and administrative fees typically higher than B and L shares.

It’s important to note that almost all shares are costlier than the fee-only variable annuity, which does not pay a commission and is managed by an investment advisor.