Variable Annuity Fees and Commissions

Variable annuities tend to be complex products, with more features and areas to cover than some other types of annuities. For this reason, they tend to include more fees than other types, including administrative fees, mortality and expense fees and underlying fund expenses.

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  • Written By Jennifer Schell, CAS®
    Jennifer Schell, CAS®

    Jennifer Schell, CAS®

    Financial Writer, Certified Annuity Specialist®

    Jennifer Schell is a professional writer focused on demystifying annuities and other financial topics including banking, financial advising and insurance. She is proud to be a member of the National Association for Fixed Annuities (NAFA) as well as the National Association of Insurance and Financial Advisors (NAIFA).

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    and Paul Garofoli, FLMI, RICP®
    Paul Garofoli, FLMI, RICP®

    Paul Garofoli, FLMI, RICP®

    Regional Vice President for Individual Annuities at Standard Insurance Company

    Paul Garofoli, with 40+ years of industry expertise, serves as the Regional Vice President for Individual Annuities at Standard Insurance Company. A notable advocate, he was elected to the Board of Directors for NAFA. Garofoli holds a Bachelor's in Political Science and Economics from the University of Massachusetts Amherst.

    • Over 40 years of industry experience
    • Regional Vice President for Individual Annuities at Standard Insurance Company
    • Elected to the Board of Directors for the National Association for Fixed Annuities (NAFA)

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  • Edited By Lamia Chowdhury
    Lamia Chowdhury
    Headshot of Lamia Chowdhury, editor for

    Lamia Chowdhury

    Financial Editor

    Lamia Chowdhury is a financial editor at Lamia carries an extensive skillset in the content marketing field, and her work as a copywriter spans industries as diverse as finance, health care, travel and restaurants.

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  • Updated: June 21, 2024
  • 4 min read time
  • This page features 3 Cited Research Articles

Key Takeaways

  • Variable annuities tend to have more fees, charges and expenses than other types of annuities, partly due to their complexity and because they perform similarly to investment portfolios.
  • Some charges, such as commissions to agents and surrender fees, are found practically universally across all annuity types.
  • Variable annuity owners can also expect additional fees such as mortality and underlying fund expenses.

Common Fees and Expenses of Variable Annuities

When considering whether a variable annuity is right for you, it can help to understand the fees and expenses attached. Some — like rider fees or surrender charges — are avoidable or only apply in specific situations. Others must be paid to fulfill your contract.

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Annuities are often purchased with the help of an insurance agent or financial professional. These agents are typically rewarded with a commission for helping you identify and set up your annuity.

But keep in mind: this charge is typically built into the price of your annuity contract. This is not an additional fee beyond what you already pay for the annuity.

That being said, some may find it helpful to ask their agents exactly how they earn a commission.

Mortality and Expense Charges

Mortality and expense charges are another common fee found throughout several types of annuities and acts as a buffer to protect the carrier from the risk of starting an annuity contract with you.

These charges are paid as a small percentage of your overall contract. According to the U.S. Securities and Exchange Commission, the charge is usually around 1.25% of the contract value and is an annual expense.

Indexed annuities and fixed annuities also typically require a mortality and expense charge. Immediate annuities are the only type that doesn’t since they are simple products that are immediately converted into payments.

Rider Fees

Rider fees are a bit different in that they vary based by annuity and are only charged if you opt to add a rider to your contract.

Riders are optional benefits that can be added to your variable annuity at an additional cost. This can include adding a guaranteed minimum living benefit or a guaranteed minimum death benefit.

You pay a fee in exchange for adding these riders to your contract. So, the more riders you add, the more expensive your annuity will become.

Conversely, you can keep your costs lower if you opt to forego any riders and remain with the traditional form of the contract.

Whether riders are necessary will likely depend on your financial situation.

Administrative Fees

Administrative fees are paid to help fund the expense of managing your contract. This is generally a simple fee and – unlike the mortality and expense costs – is not even large enough to be paid as a percentage of your contract.

It is a simple flat fee that you will be charged each year and will likely come in at well below $50.

Administrative fees are found on all types of annuities.

Underlying Fund Expenses

Underlying fund expenses are charges that you will not directly pay but are still important to be aware of, particularly since they are often unique to variable annuities.

This charge refers to the expenses that you pay as part of the mutual funds or other options that your variable annuity’s portfolio is invested into.

These charges are a standard part of many types of investing, but often don’t apply to other types of annuities since they are not exposed to real investments the way that variable annuities are.

Surrender Charges

Surrender fees are a key part of any annuity contract, variable or otherwise. The good news is that you will only ever have to worry about this expense if you withdraw money from your contract early.

Annuities include a surrender period where you cannot take money out of your contract without facing a fee. This period usually lasts for several years after purchase, since this time is meant for your annuity to grow in value.

There is no surrender charge owed if you convert your annuity into lifetime payments or take money out after the agreed-upon lifetime of the contract.

But if for some reason you need to withdraw money early into the contract, a penalty will be owed. 

Surrender charges usually steadily decrease each year until reaching zero. Many annuity contracts also include provisions that allow you to withdraw as much as 10% of the contract value without needing to pay the charge at all.

Is An Annuity Right For You?

Our short quiz provides clarity on whether an annuity is a smart choice for your retirement portfolio.

How do Variable Annuity Fees Compare to Other Types of Annuities?

Variable annuities tend to have more fees attached to them than other types of annuities. Part of the reason for this is that fees often go hand-in-hand with complexity, and variable annuities tend to be much more complex than other types of annuity products.

It’s essentially an unavoidable part of seeking a variable annuity. These products serve as investment vehicles, allowing you to set up a portfolio and invest in mutual funds.

This is simply a more expensive process than setting up a SPIA, where you hand over a lump sum and are immediately given guaranteed payments.

Some charges, such as underlying fund expenses, are a direct result from investing.

Variable annuities also may require more riders than other types of annuity contracts. You rarely have to include a rider in your contract, but variable annuity customers may be interested in several options that can help to provide more security and certainty to their contract.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: June 21, 2024
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