What Are The Fees Associated With The Variable Annuity?
August 12, 2020 by Wade Pfau
While I discussed a variety of ways that insurance companies manage the risks around supporting lifetime income guarantees, fees are the headline mechanism for managing the guarantee risk. Fees can be used to purchase financial derivatives and support other forms of risk management for the guarantee.
Deferred variable annuities generally have several types of ongoing fees. The first relate to the underlying funds expenses that would be included with any mutual fund investment. The only issue to consider here is whether the funds within the subaccounts have elevated fees due to the inclusion of 12b-1 fees in their expense ratios, and whether investment options available to the individual outside of the variable annuity also include 12b-1 fees as well. These fund fees are charged on the contract value of underlying assets and would end if the contract value depletes.
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