111 – HOW MUCH IS MY ANNUITY COSTING ME?
Variable annuity fees fall into the following five 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 cost of mailings and ongoing service. This fee can range from .10 – .30% 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 .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 – 1.00% 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.
About the author, Scott Wellens
Scott Wellens, CFP® is an investment advisor and founder of Fortress Planning Group. After earning his Bachelor of Science degree from the University of Wisconsin-Oshkosh, Scott quickly ascended to become a Vice President of North American Sales at a major regional provider of telecommunications infrastructure. While financially successful in this role, Scott searched for ways to pursue his passion related to financial literacy and providing financial freedom for both his own family and others. During his search, Scott became curious about the significant gap he found in the financial services sector: he was unable to find a comprehensive financial planner that maintained a family stewardship lens without being attached to financial products. Scott decided to fill that gap by creating his own planning firm that maintains a strong passion for comprehensive, unbiased wealth planning that is genuinely client-centered.
Scott resides in Menomonee Falls, WI with his family. He is the father of three active and independent daughters who keep him on his toes. Scott is an active community member, serving on the Hamilton Education Foundation Board, serves as a Dave Ramsey Financial Peace facilitator and leads the All Pro Dad’s group at their local elementary school. Scott enjoys spending his free time visiting state parks with his family, reading, and watching the Milwaukee Bucks and the Green Bay Packers win ball games.