Do you have any idea how much in variable annuity fees you pay EVERY YEAR? If you’re like most people you probably don’t.

What’s worse, you probably don’t know how to go about finding out what your actual fees are on your variable annuity. Well, that’s all about to change because today I’m going to show you how to find the fees down to the penny.

The Common Variable Annuity Fees

Most variable annuities will have some similar fees. The most common fees you will see include the following:

  • M&E – Mortality & Expense
  • Administrative Fees
  • Rider Fees – These can be Income Riders or Death Benefit Riders
  • Management Fees – Variable annuities have sub-accounts. They are like mutual funds. Mutual funds have a cost to being managed. They have managers that must be compensated for determining how to invest your money.

You should be able to find these fees in your variable annuity contract, also called a prospectus. There’s just one catch: The prospectus can be very lengthy. It can be hard to find the information on the fees that you are looking for.

Also, it can be difficult to read the fine print on how the different benefits under the variable annuity work. And as an added difficulty, if you do find the different sections on how a rider attached to the variable annuity works, it can sometimes be very difficult to understand what the contract is saying. It almost looks like legalese, and you have to read it very closely and very slowly.

This is one great reason you need to have a knowledgeable and trustworthy financial advisor that can help explain how an annuity contract works before you buy it.

Do Your Homework Before Buying A Variable Annuity

But there are some things you can do on your own. One of those is do your research on what fees are associated with whatever variable annuity you are considering buying. Also, if you currently own a variable annuity, it would be wise to dig through your files, find the annuity prospectus and discover what you are currently paying in fees.

You may decide that the benefits and safeguards of the annuity are not worth the fees. And to be fair, you may find that the benefits of the variable annuity are well worth the fees you pay. Either way, at least you will be aware of what is happening with your money.

Digging Through A Variable Annuity Prospectus

To show you how to discover the fees of a variable annuity, let’s look at a prospectus. Now you could choose any variable annuity out there (or more preferably do this exercise on the variable annuity that you own), but for this exercise I have chosen the Pacific Life Destinations O-Series variable annuity. You can even pull up the sample prospectus that Pacific Life provides on their website by clicking here.

(If this prospectus ever gets removed from Pacific Life’s website, I have a pdf of it saved to my website. You can access it by CLICKING HERE)

FULL DISCLOSURE: I do not sell the Pacific Life Destinations O-Series variable annuity. It is only available through one specific broker dealer, and I do not work with that broker dealer. I am only using this as a sample prospectus to go through to teach you how to find the fees from any variable annuity that you want to look up.

Opening Up The Variable Annuity Prospectus

Now the first thing you’ll notice on this particular prospectus is that it is 142 pages long. Don’t be intimidated just yet. To quickly navigate it you need to go to the Table Of Contents. For this particular prospectus it is called “Your Guide To This Prospectus.”

It is on the 24th page of the PDF file, but the actual page number at the bottom says it is page 2. Now scroll down until you see the section that says “Charges, Fees and Deductions.” In this case, that section begins on page 26. I have highlighted it below.

Pacific Life Destinations O Series Prospectus Annuity Prospectus 1 variable annuity fees


You’ll notice some of the fees I mentioned earlier, such as Mortality & Expense, Administrative Fees, and Rider Charges. There are a few other fees in there that I will explain shortly.

Let’s Take A Look At The Fees

1. Withdrawal Charge

The first fee is the Withdrawal Charge. This is also known as a Surrender Charge. With many variable annuities you can typically avoid this fee if you withdraw during a contract year no more than 10% of the premium you have paid into your variable annuity. If you exceed that amount then you will (under most circumstances) be subject to the withdrawal charge.

The withdrawal charges in this example (and in most variable annuities) decrease each year. In this case the withdrawal charges are different based on how much premium you paid into this variable annuity. Let’s use the example of paying in $200,000. In that case the highlighted portion shows your withdrawal charges if you exceed 10% withdrawals.

Annuity Prospectus 2 variable annuity fees

It starts out at 4% the first year and decreases until it goes away after 7 years. Remember, as long as you don’t exceed the penalty free withdrawal amount you won’t have to pay this fee. Check your variable annuity’s prospectus to see what yours is. They are all different.

2. Mortality & Expense Risk Charge

The Mortality & Expense fee (also called M&E for short) is a fee that compensates the insurance company for the risk of you living too long. This particular variable annuity has an annual M&E fee of 0.60%. While that might seem high, I have seen higher. However, if you add the Death Benefit Rider it will add 0.20%, bringing the fee up to 0.80%.

A lot of people will add a death benefit feature like this to their variable annuity because it gives some downside protection. You see, in a variable annuity the value of the account can go down based on investment performance. If your variable annuity’s value has declined due to market forces, when you die the portion that goes to your beneficiaries could potentially be less than what you originally put into it.

A Death Benefit Rider puts a floor on the death benefit. So even though your variable annuity may have declined in value, if you die there will be a certain amount protected that your beneficiaries get. Now while you’re living it’s not going to help you. You have to die for this benefit to work. But, never the less…

Here’s where the prospectus shows the M&E fees:

Annuity Prospectus 3 Variable annuity fees

3. Premium Based Charge

The next fee is the Premium Based Charge. This is the fee that is used to compensate the sales forces. In other words, this is what your financial advisor gets.

Some variable annuities will pay the financial advisor all up front. Others will spread the advisor’s compensation over time. In this case the compensation is spread over 7 years. The percentage of compensation is based on how big your premium is paid into the annuity. The more premium you pay into the annuity, the lower the sales force compensation. Think of it as buying in bulk. You get lower expenses when you buy in bulk.

Here’s the screenshot from the prospectus for what the sales force gets. I have highlighted what it would be if you purchased a $200,000 annuity.

Annuity Prospectus 4 variable annuity fees

Also, notice that after 7 years this fee goes away. But for the first 7 years you will pay 0.50% annually from your annuity’s value. Any additional premium you pay into the annuity will also pay a Premium Based Charge for 7 years.

So if you add up the 7 years of compensation, the financial advisor would get paid 3.5%. Not bad for a day’s work.

4. Administrative Fee

The next fee is the Administrative Fee. This is to cover the insurance company’s cost of issuing, administering, and processing applications. In this case the fee is 0.15%. That’s pretty standard.

Annuity Prospectus 5 variable annuity fees

5. Annual Fee

There is an Annual Fee to this variable annuity. It is minimal at $40.00 per year.

Annuity Prospectus 6 variable annuity fees


6. Optional Rider Charges

Optional Rider Charges are just that… optional. Many variable annuities (perhaps most) will give you the option to attach an income rider. The rider typically guarantees some level of income the insurance company will pay you for the rest of your life, even if your variable annuity drops down to $0 in value. It is essentially insurance that protects you from outliving your money.

In this case there are 2 options for the income rider. One is a single payout and the other is a joint payout. The fees for them can vary, but the maximum amount is listed. You’ll notice that when the 10 year Treasury rate is lower the insurance company (in this specific example) can charge a higher percentage against your account value for this benefit. Since it can vary, let’s just say this fee (if a person so chooses to add the income rider) would be 1.0%.

Annuity Prospectus 7 variable annuity fees


7. Fund Expenses

We’re going to skip Premium Taxes as those will be different based on what state you live in. They may not even be applicable based on the state you live in. And we’ll skip Waivers and Reduced Charges, which gives the insurance company the option to reduce some charges… but they don’t have to.

We’ll move on to Fund Expenses. A variable annuity includes sub-accounts that your money is invested in. They are very much like mutual funds. These sub-accounts are invested with different money managers. And like mutual funds, they have fees associated with them to compensate the managers that are determining when to buy and sell holdings in their funds.

These Fund Expenses will vary based on which investment options you pick. But there are some ways to determine this expense.

First, look at the investment options inside your variable annuity. They can be found in the prospectus. In this example they are found under “Your Investment Options.”

Annuity Prospectus 8 variable annuity fees


Under this section you can see all the different investment options, as well as each option’s Investment Goal and the Manager of that fund.

To determine the fees associated with this, you can look the fund up on a site such as Morningstar. Under their free section you can find out what a fund’s expense ratio is.

So let’s use an example. One of the investing options under this variable annuity is the Janus Aspen Series.

Annuity Prospectus 9 variable annuity fees

The easiest way to find info on this is to Google Janus Aspen Series Balance Portfolio Service Shares. What you will find when you Google a lot of funds is a Morningstar link on the first page of Google. Click on the link.

Annuity Prospectus 10 variable annuity fees


In this case it was the second search result. After clicking on it you will go to the Mornginstar page. It will show you information for the Janus Aspen Balanced Institutional fund (ticker symbol JABLX). On this first page, Morningstar will show you the fund’s expense ratio. This is the cost the managers must get paid to manage this fund. That means you have to pay it. In this case the fee is 0.58%

Annuity Prospectus 11 variable annuity fees



One other thing to mention about the fund fees. It is best to call the insurance company up directly and ask what the fund expense fee is. I have called an insurance company before to do this. And the fund expense fee they gave me was actually higher than the expense ratio I found on Morningstar. So it never hurts to call the insurance company directly. But for our purposes today, we’ll use 0.58% even though it may be higher.

Adding All The Expenses Up

We’ve gone through a lot of fees. So let’s add them all up.

M&E Fee with Death Benefit 0.80%
Optional Income Rider Fee 1.0% (this is optional
Premium Based Charge 0.50% (first 7 years only)
Administrative Fee 0.15%
Fund Management Fee 0.58%
TOTAL FEES 3.03% (for first 7 years)


So based on this variable annuity’s prospectus, the total fees for the first 7 years would be 3.03% (they could be higher if we called up the insurance company and asked what the Janus fund’s fees are). After 7 years has passed the Premium Based Charge would go away, so that would drop the fees down to 2.53%. But for the first 7 years there would be a drag on your investment results of 3.03%. That can be a big drag.

Count The Cost Before You Buy An Annuity

Be aware of what you’re getting into before you get into it. The big upside with many variable annuities is the income rider guarantees. If that’s what you are looking for, shop around to see if this is the most cost efficient way to get that guaranteed income.

Another benefit of variable annuities is the death benefit. But beware they all work differently. Some may only give a stepped up death benefit based on what the annuitiy’s value is on each anniversary date. That’s one time a year. So if the variable annuity had a high value during the year, but for some reason the value dropped around the anniversary date, you may not get as high a step up in death benefit as you thought.

Also, the step-up death benefit for many annuities may not keep increasing forever. Some will only last a few years. And you have to die for the benefit to work.

The goal of a step-up death benefit is to offer some downside protection on your investment. But the truth is there are better ways to help protect your portfolio from the downside of the market if that is important to you.

Be sure to check your prospectus if you have a variable annuity or are thinking about purchasing one. Whatever is in your prospectus will be the rules by which your variable annuity will work.


Do you have questions about your variable annuity? Are you feeling confused about them? Well, you are not alone.

There are a lot of people out there pushing investors to buy one. As you can see from our little exercise here today, it can be confusing going through a prospectus. And we only looked at the fees found in a prospectus. We didn’t get into the nuances of how the income rider works, or the limitations of how the step-up death benefit work.

Just remember, variable annuities are typically long-term contracts with surrender fees. For some investors they don’t make sense at all. For other people they may make good sense.

Do you know someone that has an annuity? Or maybe you know someone that is considering buying one? If so, then share this article with them. Help them be empowered to understand the fees they are paying (or may pay if they purchase a variable annuity).

There’s a lot of information out there. Some of it conflicts with each other. That’s why I like to go straight to the source, the variable annuity prospectus. I want you to see this information straight from the horse’s mouth.

Also, if you have a Facebook account, you can share this article by clicking the Facebook icon to the left. That way more people will be able to find out and benefit from this valuable information. It’s a great way to share this with friends and families.

One last thing, if you are an investor and you are confused about anything you saw in this article today, feel free to reach out to me. You can grab a spot on my calendar very easily by CLICKING HERE. We can have a 20 minute phone conversation where I’ll answer your questions and point you in the right direction.

In your service,

Chris Hammond