When you buy an annuity, your premium isn’t the only factor to consider. Many annuities include fees, commissions or surrender charges that influence your long-term return. Some contracts keep expenses simple, while others offer additional features that may come with ongoing costs. Understanding how these charges work helps you compare products confidently and choose the option that best aligns with your goals.
How Fees and Commissions Work
Most annuities sold through agents include a built-in commission. You won’t pay this out of pocket — the insurer pays the agent and recovers the cost through the contract’s design.
Beyond commissions, insurers may charge for administration, investment management or optional guarantees (known as riders). The number and size of these fees depend on the complexity of the annuity.
Example: You buy a $100,000 fixed indexed annuity through an agent. The insurer pays the agent a 6% commission ($6,000). You still have the full $100,000 invested — the commission is absorbed by the insurer over time, not taken from your premium.
Common Annuity Fees (With Examples)
Annuity fees vary by product type and provider, but most contracts share a few standard charges. The list below explains the key annuity fees you should understand and how they impact your account value.
Administrative Fees: A small charge that covers contract servicing. These may appear as a flat annual fee or be built into the product’s rate.
Example: A contract may charge a $50 annual admin fee, deducted from your accumulation value.
Surrender Charges: If you withdraw more than the penalty-free amount during the surrender period, you’ll owe a fee.
Example: You take out 15% of your contract during year three, but your annuity only allows 10% penalty-free. The extra 5% may face a surrender charge, commonly around 7% in early years.
Mortality & Expense (M&E) Fees: Common in variable annuities, these fees support guarantees such as death benefits or income protections.
Example: A 1.25% M&E fee on a $100,000 account costs $1,250 per year.
Investment Management Fee: Variable annuities charge fund expenses similar to mutual funds. Fees vary based on the subaccounts you choose.
Example: If your chosen subaccount charges 0.85%, that cost is deducted from your investment returns annually.
Rider Fees: Optional features — like guaranteed lifetime withdrawals — cost extra.
Example: A lifetime income rider may cost 1% per year. On a $100,000 contract, that’s $1,000 annually.
Why Fees Differ Between Annuity Types
The more benefits an annuity offers, the more it typically costs.
- Fixed annuities are simple and usually low-fee.
- Fixed indexed annuities have limited explicit fees but may charge for riders.
- Variable annuities often have the highest fees due to investment options and multiple guarantees.
Higher fees aren’t always negative — they may support benefits that other products can’t match.
Annuity Fees by Type
Each type of annuity comes with its own fee structure. Use this comparison chart to see which charges you can expect based on the product you choose.
| Fees | Fixed Annuity | Fixed Indexed Annuity | Variable Annuity |
|---|---|---|---|
| Commissions | ✓ | ✓ | ✓ |
| Administrative Fees | ✓ | ✓ | ✓ |
| Surrender Charges | ✓ | ✓ | ✓ |
| Mortality & Expense Fees (M&E) | ✓ | ✓ | |
| Investment Expense Ratio | ✓ | ✓ | |
| Rider Fees | ✓ | ✓ | ✓ |
| Rate Spreads / Yield Spreads | ✓ | ✓ |
How To Spot Hidden or Unexpected Costs
Fees should be disclosed in the contract, but they’re not always obvious. Review the fee table, surrender schedule and rider cost pages carefully.
If you’re unsure, ask the insurer or agent to summarize all fees in plain language. This ensures you know which charges apply annually, which apply only if you withdraw early, and which are optional.
Example: A variable annuity with a 1.25% M&E fee, 0.90% average fund fee and a 1% income rider would cost 3.15% per year in total ongoing charges — before any surrender fees.
Is the Cost Worth It?
Fees are not necessarily a drawback if the annuity provides benefits you value, such as guaranteed income or downside protection. A low-fee product may offer fewer guarantees, while a higher-fee product may deliver stronger long-term security.
The key is choosing an annuity where the benefits justify the cost based on your goals and risk tolerance.
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