One major complaint that naysayers have with annuities are the fees. They say annuities are "expensive."
Well, let's talk about those fees. We'll begin our discussion with the most fee-laden variety, the variable annuity (VA). The typical VA has average annual charges near 4.5 percent, all-in. Here's the breakdown of what's included:
Administrative Service Charge: A fee that is typically expressed as a percentage of the annuity's account value (AV), and covers the cost of transferring funds between sub-accounts, issuing policy statements and tracking the deposits in the contract.
Contract Maintenance Charge: A yearly charge that is assessed against an annuity to cover the insurance company's administrative expenses associated with servicing the contract.
Mortality & Expense Risk Charge (M&E): A fee that is typically expressed as a percentage of the annuity's AV, and compensates the insurance company for the risks it assumes under the contract.
Underlying Fund Expenses: A fee that is expressed as a percentage of the annuity's AV; this charge is imposed by the mutual fund investment companies that offer the underlying mutual fund options on the contract.
Optional Rider Fees: A charge that is expressed as a percentage of the annuity's AV, which compensates the insurance company for the risks it assumes in offering one or more of several benefits such as:
