Understanding Annuity Expenses

Sales charges	Many annuities impose a sales charge. Normally, the sales charge is in the form of a back-end load, also known as a contingent deferred sales charge (CDSC). CDSCs are usually incurred if the owner surrenders the contract, or withdraws funds that exceed the free withdrawal amount (a specified amount usually equal to 10% of the contract value). A CDSC applies for a certain number of years, and the amount of the charge normally decreases with each year. For example, a 7% CDSC may be imposed in the first year but may be reduced by 1% each year for seven years, reaching 1% in the seventh year of the contract and 0% thereafter. A sales charge does not have to be a CDSC, though. Instead of a CDSC, an annuity may impose an initial sales charge, also known as a front-end load. Front-end loads are applied as a set percentage of each premium payment (e.g., 3%).
Mortality risk charge	This charge compensates the insurance company for the risks assumed with the guaranteed minimum death benefit feature and for guaranteeing minimum annuity settlement option rates. For fixed annuities, this charge is factored into the fixed annuity rate. For variable annuities, this charge is a stated rate (usually about 1% of the accumulated value).
Expense charge	This charge compensates the insurance company for administration expenses. It does not apply to fixed annuities.
Premium taxes	Imposed by some states, usually about 2% of premiums.
Subaccount management fees	These apply only to variable annuities and cover expenses incurred to manage variable annuity subaccounts.
Annual policy fee	Some companies impose a flat annual fee on each policy.
Fees for option features	If you purchase optional benefits (also known as riders), such as enhanced death benefit guarantees and guaranteed minimum income benefits, additional fees are applied.
Transaction fees	May be imposed for excessive account transfers on variable annuities, withdrawals, and other transactions. This charge does not apply to fixed annuities.