A variable annuity has a lot of benefits and it usually has a significant rate of return depending on the performance of an individual’s preferred investment options. However, the amount of money left on your account can be determined by the various fees that the insurance company will charge you for various benefits. The most common charges that an insurance company deducts from an account for various services or benefits include:
The insurance company will charge the investor some fees for services such as the keeping of records or other expenses that have to do with managing and maintaining the account. These fees vary from one insurance company, and may be a flat rate or a percentage of the value of the account.
2. Expense risk and mortality fees
This is usually a yearly fee and it is typically a certain percentage of the value of your account that is meant to reimburse the company for any risks that it takes up for your variable annuity. It sometimes compensates them for any costs incurred while dealing with your variable annuity. These charges also vary from one insurance company to another, and the individual investor must find out what the rate of their insurance company is.
3. Fees charged on expenses imposed by underlying funds
The insurance company will indirectly impose the fees or any other expenses that are incurred by mutual funds in your variable annuity.
4. Surrender charges
When entering into a contract with an insurance company to purchase a variable annuity, there is usually a set period of time in which you agree not to withdraw the funds in the account. However, if you are faced with a circumstance in which you have to take out some or all of the funds in the account before the said date, the insurance company will charge you for the withdrawal. The ‘surrender charge’ is a type of sales charge. The insurance agent is in essence selling you the variable annuity. It is usually in the form of a certain percentage of the total amount that you withdraw and it may decline as the surrender period goes by. Therefore, if you were supposed to withdraw the funds after eight years, and you start withdrawing after two years, you will be charged a declining surrender charge until after the eight years are up, and then this charge will not apply any more.
5. Fees charged on benefits
Variable annuities has several benefits but it is important to note that there is usually a charge on each benefit, and the individual must read the terms carefully before choosing any particular benefit.
The charges imposed on a variable annuity will affect the value of your account and since the charges differ from one insurance company to another, it is important for the investor to carefully compare quotes before deciding which insurance company to purchase a variable annuity from. It is also important for the investor to carefully study the prospectus of an insurance company in order to know every single charge and to determine how these charges will affect the value of their variable annuity account.