Understanding Your Variable Annuity

Variable annuities are often confusing and hard to understand. In addition to the fees charged for managing the sub- accounts (read mutual funds) within the policy consumers also pay for the insurance portion of the policy (mortality expense) and various riders and options offered with the policy. If you want to compare the expenses of owning or buying a variable annuity, this months issue of "Money Magazine" offers up a simple grid that you can take to your insurance agent ( yes your broker is an insurance agent if she is offering you an annuity) for help comparing.

E-Z annuity fee disclosure checklist

Before you buy any annuity, ask your advisor to fill in the blanks.

What you pay each year Annual fee (as % of account value) for: Number Typical The insurance (a.k.a. mortality and expenses) _____% 1.35% The investments within the annuity _____% 0.95% Riders and options _____% 0.65% Total annual fee: _____% 2.95% What you pay to get out Max. surrender charge (as % of withdrawal) _____% 7% Number of years before surrender charge expires _____ 8

Source:Morningstar, National Association of Variable Annuities, Money research
Note: Max. surrender charge may not apply to all withdrawals.

You can read the full story here.