Variable annuity death benefits need to be compared against term life insurance. The standard death benefit pays the greater of principal or value upon death. Some death benefits can have an annual cost of 1.1% to 1.75% of the contract value (the M&E charge).
For example, suppose a client invested $100,000 in a variable annuity and the mortality expense was 1.25% per year (or $1,250 per year +/– based on contract value). Is the client really getting $100,000 worth of insurance? Only if death occurs when the contract has dropped to zero. If this same client were a 65-year-old male in good health, $100,000 of term life insurance would cost about $580 a year—far less than the $1,250 imposed by the typical variable annuity.
The likely downside risk of a variable annuity is 50-60% of the amount invested. Using the numbers from the paragraph above, this means a $50,000 to $60,000 term life policy for a 65-year-old male would cost $290 to $348 a year. Compare this to the $1,250 a year cost for variable annuity protection. Equally important are the tax consequences (see next paragraph).
Any annuity death benefit (> principal) is taxed as ordinary income when received; life insurance proceeds are tax-free.There are variable annuity death benefits that lock-in any gain after specific internals, based on contract anniversary date (e.g., every 1, 3, or 5 years). Again, the question then becomes what is the expected risk versus what could be protected with life insurance.
In summary, a variable annuity investor would generally be better off with an inexpensive M&E charge, say 0.1% to 0.5% a year, coupled with a modest life insurance policy, say $50,000 term policy to protect a $90,000 to $100,000 variable annuity. This would be a cheaper and more effective alternative (since life insurance proceeds are not subject to income taxes) to a variable annuity that has a 1.0%+ annual M&E charge. The potential disadvantages of this strategy are:  making sure the investor is able to buy an inexpensive term life insurance policy;  annual policy premiums compare favorably at ages 60-75 (or whatever period is to be protected); and  the investor is able to buy an appealing variable annuity that has an inexpensive M&E charge. For example, Fidelity and Schwab offer a basic death benefit, which is part of their 0.2-0.3% annual M&E charge.