There are fees and charges you must pay annually. Annuity expenses can be 3 % or more per year. Make sure you understand and ask questions about all the fees and charges before you buy. The fees often include:
- Surrender charges - If you cancel or cash out the policy early you must pay a surrender charge. This charge is typically highest in the early years of the annuity and may be reduced or eliminated over time. Surrender charges commonly range from 5 to 25% of the amount withdrawn. The average surrender charge period is seven years.
- Mortality expenses - This is a fee charged by the insurance company to provide you with a death benefit on the contract.
- Administrative expenses - Many policies have a separate administrative fee to cover the costs of mailings and ongoing service.
- Investment-expense ratio - The underlying stock or bond account (variable annuities) will have an annual investment management fee.
- Additional costs of riders - Riders are extra features on your policy that provide you with additional guarantees or death benefits.