Do you want to know how the insurance companies are going to charge you if you bought an annuity? Do you want to get a better understanding of what kind of costs and fees were involved before you make any decision on whether or not to buy an annuity? Do you also want to know the risks involved in buying annuities? Then read on.
Since these are the questions that are often asked by those people who are interested in buying annuities, it would be better to break down the 3 different types of fees that go into annuities.
1) Mortality and Expense Fees. The primary fee normally charged by an annuity is what’s identified as a “mortality and expense.” It pays for the insurance guarantee, commission, selling, and and other expenses of the agreement. In a variable annuity, these fees will be billed as a portion of the average investment value and will most likely be quoted in the form of “basis points.” In a fixed annuity, these fees are generally integrated in the resolution of the periodic rate of interest or the annuity payment amount in the distribution phase from the insurance company.
2) Surrender Fees. The inclusion of surrender fees often hold back many in buying annuities. Many annuities will charge a surrender fee only if the annuity is cashed prior to the specific time period, which may run between 1 to 12 years. An average surrender fee starts at 7 percent in the 1st year of the contract, and is reduced by 1% per annum then until it gets to zero. When the annuity is surrendered, this fee will be made from the value of the annuity. Surrender fees’ main purpose is for insurance companies to make money, but it also serves to dissuade a short-term investment by the buyer.
3) Management Fees. On subaccounts, management fees are evaluated by variable annuities, and they’re similar to the manager’s fees in a mutual fund. Management fees change with respect to the different subaccount options in the annuity. The fees, generally, will be about under those charged by a managed mutual fund in the same investment group — but not at all times.
Video - The Truth about Fixed Indexed Annuities. The truth about annuities.
The Risks Associated with Annuities
What happens if the insurance company breaks down and goes out of business? What is going to happen to your investment? There are a lot of safety means insurance companies do have in place with every type of annuities. However, like any other investment, there’s a risk involved. Some of the risks are: interest risk and fees risk. So before you make any investing decision make sure you consult a financial adviser and perform a risk assessment procedure.
Annuities In The News
Why Annuities are the Answer (But Such a Tough Sell)TIMEWhen it comes to the one sure-fire solution—immediate fixed annuities—retirees have a split personality. According to research out of Harvard, 77% of retirees wish they had locked in a guarantee …
Jagran PostNPS subscribers to have six firms to buy annuities fromBusiness StandardSubscribers to the New Pension System (NPS) would have a choice of six insurance companies from which they can buy annuity products after exiting the scheme. Annuity p …
Another Case for Annuities in 401(K) Plans? Cognitive ImpairmentInsurance News Net (press release)By Diana Britton The battle to get annuities into 401(k) plans has been hard-fought, and it’s not over yet. Insurance companies see a need to get ‘lifet …