A variable annuity's mortality and expense risk charge is typically about 1.25% a year, and administrative fees typically about 0.15% a year, before fund expenses and optional riders (SEC, Variable Annuities: What You Should Know, page modified April 18, 2011).
Why annuity fees are hard to see
FINRA lists the usual charges: surrender charges, mortality and expense risk charges and administrative fees, plus charges for riders, and notes annuities "can have high commissions" (FINRA, Annuities, checked October 14, 2026).
A salesperson may say a fixed or indexed annuity has "no fees." That usually means no separate annual line item. The insurer still covers its costs and the commission, but through the rate it pays, the cap it sets and the surrender schedule. A variable annuity, by contrast, is a security sold with a prospectus, and its fee table is where to start.
Variable annuity fees, layer by layer
- Mortality and expense risk charge: typically about 1.25% of account value a year. The SEC notes profit from it is sometimes used to pay the seller's commission (SEC, Variable Annuities: What You Should Know, page modified April 18, 2011).
- Administrative fees: a flat $25 or $30 a year, or about 0.15% of account value (same source).
- Sub-account expenses: the fees of the funds inside the annuity, which you pay indirectly (same source). Look up each fund you choose in the prospectus.
- Riders: features such as a stepped-up death benefit or a guaranteed minimum income benefit often carry extra charges (same source). Ask for the percentage and what it is charged on: the account value, or a larger benefit base. See income rider fees.
- Surrender charges: the SEC example starts at 7% and falls to zero by the eighth year, with 10% or 15% a year often free (same source).
Add the layers yourself. The prospectus fee table shows each one, but rarely the total in dollars.
Fixed and indexed annuities: no line item, still a cost
In an indexed annuity, the limits on your growth are the main price. FINRA gives examples: a 75% participation rate gives you 75% of the index gain; a 3.5% spread turns a 10% index gain into 6.5%; a 7% cap holds a 12% gain to 7% (FINRA, The Complicated Risks and Rewards of Indexed Annuities, July 14, 2022). Caps and rates are often guaranteed only for the first term; see our guaranteed minimum caps study.
Other costs to look for:
- Surrender charges for leaving early. See surrender charges.
- A market value adjustment (MVA), which can reduce what you get back if rates have risen since you bought. See market value adjustments.
- Rider fees for income or enhanced death benefits, charged every year whether or not you use them.
- Commission, built into pricing: 6.26% of premium on indexed annuities against 2.29% on multi-year guaranteed annuities, in the latest public averages we could verify, for the first quarter of 2018 (InsuranceNewsNet, citing Wink, May 25, 2018). See annuity commissions.
Bonuses and exchanges: fees that arrive later
A bonus is not free. The SEC compares two variable annuities with a 10% return before expenses: one with a 4% bonus and 1.75% in annual charges grew $10,000 to $22,978 in ten years; one with no bonus and 1.25% in charges grew to $23,136 (SEC, Variable Annuities: What You Should Know, page modified April 18, 2011). See the bonus annuity catch.
Exchanging an old annuity for a new one generally starts a new surrender period, even if the old one had expired (same source). And taxable money taken before 59½ can owe an extra 10% tax (IRS Publication 575, 2025).
When paying the fee can make sense
A fee buys something. A guaranteed lifetime income, or a death benefit that protects heirs from a market drop, has real value to some people. The test is whether you would actually use the feature, and whether you could get the same protection more cheaply another way. If you would not use a rider, it is a cost with no benefit to you.
Before you sign, look up the company and the person. Your state insurance department licenses both; find yours through the NAIC list of state insurance departments. The NAIC Consumer Insurance Search shows complaint information on insurers. If the product is a variable annuity or a registered index-linked annuity, the seller must also be registered with FINRA, which you can check on FINRA BrokerCheck.
After delivery you have a free-look period to cancel without surrender charges. Its length is set by your state and generally runs 10 to 30 days (FINRA, Annuities, checked October 14, 2026). See how the free-look period works.
A plain example: what a fee costs over 10 years
Hypothetical: a retired couple with $900,000 saved puts $250,000 into a variable annuity that earns 5% a year before fees, with the total annual fee taken from the balance at the end of each year. 1.40% is the SEC's typical mortality and expense charge plus administrative fee (1.25% + 0.15%). The 2.0% and 3.0% rows are hypothetical totals after adding fund expenses and a rider.
| Total annual fee | Value after 10 years | Fees paid over 10 years | Less than with no fee |
|---|---|---|---|
| 0% (no fee, for comparison) | $407,224 | $0 | $0 |
| 0.50% | $387,315 | $16,110 | $19,909 |
| 1.40% | $353,673 | $43,173 | $53,550 |
| 2.00% | $332,731 | $59,909 | $74,492 |
| 3.00% | $300,297 | $85,640 | $106,927 |
Arithmetic: each year the balance grows 5%, then the fee percentage is subtracted. With no fee, $250,000 x 1.05 to the 10th power = $407,224. The last column is larger than the fees paid because money taken in fees also stops growing. Real fees may be charged daily or quarterly and returns vary, so treat this as a sense of scale.
Red flags
- Saying a fixed or indexed annuity has "no fees" without explaining the cap, spread, surrender charges and rider costs.
- Quoting only the mortality and expense charge as "the fee" on a variable annuity.
- Describing a rider as "only 1%" without saying it is charged on a benefit base that may be larger than your account.
- Adding riders you did not ask for or will likely never use.
- Calling a bonus "free money" without showing the higher charges or longer surrender period behind it.
- Not giving you the prospectus or fee table before you sign a variable annuity.
- Recommending an exchange that starts a new surrender period without a written cost comparison.
- Being unable to give you the total yearly cost in dollars.
- Changing the subject when you ask how the seller is paid.
- Pointing to a past index return without showing what the cap or spread would have credited you.
Questions to ask before you sign
- What is the total yearly cost of this contract, including riders and fund expenses, in dollars?
- Which fees are charged on my account value, and which on a benefit base?
- What are the surrender charges in each year, and how much can I take out free?
- Is there a market value adjustment, and how is it calculated?
- Can the cap, participation rate, spread or rider fee change after I buy? What are the guaranteed limits?
- What would this contract look like with no riders at all?
- Does the bonus come with higher fees, lower caps or a longer surrender period?
- How are you paid on this sale, in dollars?
- Where in the contract or prospectus is each fee written down?
- If I exchange my current annuity, what fees and surrender charges start over?
Read This Before You Sign
A one-page checklist: the red flags in annuity and indexed universal life (IUL) sales, and the questions to ask before you sign anything. A fee checklist for any annuity: every charge to find in the contract, and the questions that surface them. We’ll email it to you.
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Sources
- SEC: Variable Annuities: What You Should Know (page modified April 18, 2011, checked October 14, 2026)
- FINRA: Annuities (checked October 14, 2026)
- FINRA: The Complicated Risks and Rewards of Indexed Annuities (July 14, 2022)
- InsuranceNewsNet, citing Wink's Sales & Market Report: agent commissions, first quarter 2018 (May 25, 2018)
- IRS: Publication 575 (2025), Pension and Annuity Income (checked October 14, 2026)
- NAIC: Consumer Insurance Search (checked October 14, 2026)
The Retirement Literacy Foundation is a 501(c)(3) public charity. This page is general education, not tax, legal or investment advice. Nothing is sold here, no product is recommended, and RLF accepts no funding from financial companies. Rules and figures change; each one above shows its source and date. Check anything you plan to act on with your state insurance department or a qualified professional who is not paid on the product.