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FEES TO AVOID.

 

12/18/11: Saturday

5 Variable Annuity Fees To Ask About

 

Variable Annuity Fees Can Be High – So Inquire Before You Buy

 

Variable annuity fees can be as high as 3.25% or more per year if you add additional features. Take the time to understand all the fees and charges before you buy.

The variable annuity fees you incur will fall into the following categories:

  • Mortality Expenses (M&E)
    This is a fee charged by the insurance company to provide you with a death benefit (often just a guarantee to pay out to your beneficiaries at least what was put in). This variable annuity fee can range from .50 – 1.5% of the policy value per year.
  • Administrative Expenses
    Many variable annuity policies have a separate administrative fee to cover the costs of mailings and ongoing service. This fee can range from .30 – .50% of the policy value per year.
  • Investment Expense Ratio
    Inside a variable annuity, the underlying stock and bond investment choices, called sub-accounts, will have an investment management fee which can range from 1.25 – 2.00% of the value in that account per year.
  • Additional Cost of Riders
    Riders are extra features on your variable annuity policy that provide you with additional guarantees or death benefits. Depending on the extent of the benefit, riders can cost .25 – 1.50% of the policy value per year.
  • Surrender Charges
    Many policies pay an upfront commission to the person who sells the policy to you. A surrender charge is put on the variable annuity policy so that if you cancel the policy early, the insurance company can thus recoup the commission they had to pay out.

Try to Avoid policies with long surrender charges.
Surrender charges can vary from 10 years to 15 years in length, which limits your flexibility. If your circumstances change, you will have only limited access to your money if there is a high surrender charge to get to it.

Think twice about going into a plan that has all these fees that take away from your annual gains, and fees are paid whether you have gains or losses.

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