Variable annuity is a professionally managed, tax-deferred investment vehicle, typically designed to protect you from financial loss in future and lets you to choose a portfolio of investment options or sub accounts, made up of stocks, bonds, and other short-term investments. Variable annuities comprise various charges and fees not found with other investment products.

Variable annuity charges reduce the value of your account and the return on your investment. That’s why these annuities are infamous for the fees they charge. Variable annuity can be deferred annuity or immediate annuity. Charges and fees vary on the basis of different variable annuities.

It is vital to read the prospects cautiously to get proper understanding of all fees and charges beFor making variable annuity investment. In this article we will discuss some of most common charges attached with variable annuity investment.

Surrender charges- Annuitant has to pay surrender charges to insurance company if he/she liquidates a contract or take out funds in excess of free withdrawal provision during the surrender charge period. Normally surrender charge period vary from six to eight years. Typically, the surrender charge is a percentage of the amount withdrawn, and declines gradually over a period of several years i.e. surrender period.

Mortality and expense risk charge- Insurance Company charges these fees from annuitant for bearing the insurance risk and providing assured future payments. Mortality and expense risk charge is a certain percentage normally 1.25% per year of your account value.

Administrative fees- Variable annuities are professionally managed investments and insurer has to pay various administrative costs associated with servicing the annuity, including the cost of transferring funds, tracking purchase payments, issuing confirmations and statements, record keeping and customer service. Insurance company charge administrative fee as a flat account maintenance fee or as a percentage i.e. 0.15% per year of your account value to compensate all administrative expenses.

Underlying fund expenses on sub accounts- Under this head insurance company charge management fees include the costs of managing the portfolio of securities within the account and fund expenses cover the cost of buying and selling securities and administration charges.

Some other fees such as contract fee that is charged for keeping the contract active and premium taxes range from 0% to 5%, imposed by certain state and local governments. Ask your annuity broker to provide all vital information regarding various charges related to variable annuities.

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