There are two classes of annuities: fixed and variable. Fixed annuities are issued by insurance companies and offer interest for a specific time period (other benefits also). Variable annuities are securities sold by licensed security brokers, their products (variable annuities) have fees at several layers.
Insurance companies, which issue fixed annuities, pay the insurance professional a finder’s fee (for finding you, which doesn’t come out of your investment). It comes directly from the insurance company. However, this is only true for fixed annuities.
There are fees with variable annuities.
According to the National Association of Variable Annuities (NAVA), the industry average M&E in the average fee was 1.15%, which comes out of your pocket. Annuity fees are dependent on the company you purchase from. Some variable annuity companies can and do charge fees for the basic contract, some as high as 1.65%.
Only for variable annuities. These fees are comparable to the management fees mutual funds charge. The fees for variable annuities are typically lower than mutual fund fees. If you’re interested in a variable annuity, ask the adviser for a list of fees. Fees for management of each individual separate account range wildly, from as low as .25% to as high as 2% or more.
Fixed annuities do not have management fees.
Whiled there are no upfront fees for indexed annuities, there can be other fees.
If you want the benefits an annuity can provide, you must let them hold your money. Annuities are a long term commitment (5 years or more). Many annuities, not all, will impose a surrender charge if the annuity is cashed in before a specific period of time. The period is determined by your individual annuity. The period could be 2 years or 10 years, it depends on the annuity product. The typical early surrender fee usually starts at 7% of the sum invested and goes down roughly 1% per year. Make sure to ask your financial adviser about early surrender fees. It will help in your selection of the company you want to purchase an annuity from.
Other fees exist for specific rider benefits. The rider could be for an expanded income benefit, expanded death benefit, a long term care benefit and several others. Variable annuities charge for these riders and if you happen to buy a variable annuity, which has fees in the higher range, the annual fees charged to your annuity could push to about 4%.
Discover more about the different types of annuities, the pros and cons of each, by looking at this video.