Variable Annuity Charges and Fee Structures
Last updated: February 2026 | Data as of: Year-end 2024
A variable annuity with a guaranteed lifetime withdrawal benefit costs the average contract owner roughly 3.3% per year in total annual charges. That figure may not appear in any single line of the prospectus, because variable annuity costs are distributed across six distinct fee layers, each disclosed separately, each deducted differently, and each easy to overlook when evaluating the contract in isolation.
This layered structure is precisely what makes variable annuity fee analysis both essential and commonly misunderstood. The advisor who can walk through each layer, quantify the total, and explain what the client is getting for the cost has a conversation that most competitors cannot match. The advisor who cannot do that is selling a product they do not fully understand.
The Six Fee Layers
Every variable annuity contract contains some combination of six categories of charges. Not all contracts include every layer (fee-based contracts, for example, eliminate the contingent deferred sales charge entirely), but understanding all six is necessary to evaluate any contract accurately.
Table 1: Variable Annuity Fee Layers and Current Ranges
| Fee Layer | Typical Range | Industry Average | What It Pays For |
|---|---|---|---|
| Mortality and expense (M&E) | 0.15-1.50% | 1.19% | Death benefit guarantee, insurer expense risk assumption, insurer profit |
| Administrative charge | 0.10-0.30% | 0.18% | Statements, confirmations, transfer processing, recordkeeping |
| Subaccount management fees | 0.10-1.50% | 0.94% | Portfolio management, research, trading (similar to mutual fund expense ratios) |
| Contract maintenance fee | $0-$50/year | Varies | Basic contract administration; often waived above $25,000-$100,000 |
| Optional rider costs | 0.50-1.50%+ | 1.06% (GLWB) | Living benefits, enhanced death benefits |
| Contingent deferred sales charge | 0-8% declining | Varies by year | Broker compensation recovery on early withdrawals |
Source: Fisher Investments Annuity Evaluation Service, analysis of 26,547 unique annuity policies, January 2020 through December 2024. CAS curriculum Chapter 2 fee structure framework. Ranges reflect the full spectrum of available contracts across all distribution channels.
The first three layers are ongoing and unavoidable in virtually every variable annuity contract. Together, they form the “base cost” of owning the contract before any optional features are added.
Mortality and Expense: The Largest Ongoing Charge
The M&E charge is where most of the cost variation occurs between contracts, and it is the single fee that advisors should examine first when comparing variable annuities.
The mortality component compensates the insurance company for guaranteeing a death benefit. The insurer’s risk is real: if the contract owner dies when market losses have pushed the contract value below the guaranteed death benefit floor, the insurer pays the difference from general account reserves. The more generous the death benefit guarantee, the higher the mortality charge required to fund it.
The expense component protects the insurer against administrative cost overruns and provides a margin of profit. Unlike mutual fund expense ratios, which cover only investment management, the M&E charge bundles insurance risk, administrative expense protection, and profit into a single deduction.
The industry average M&E charge of 1.19% encompasses a wide range. At the low end, fee-based (I-share) contracts from providers like Fidelity, Nationwide, and certain Jackson products carry M&E charges as low as 0.15% to 0.35%. These stripped-down charges reflect a minimal death benefit (return of contract value only) and no built-in broker compensation. At the high end, commission-based contracts with enhanced death benefits can carry M&E charges of 1.50% or more.
On a $500,000 contract, the difference between a 0.25% M&E charge and a 1.50% M&E charge amounts to $6,250 per year. Over a 20-year holding period, that spread compounds to well over $100,000 in preserved (or eroded) wealth, even before considering the effect on investment returns.
Subaccount Expenses: The Hidden Second Layer
Subaccount management fees function identically to mutual fund expense ratios and cover the cost of professional portfolio management, research, and trading within each investment option. Because these fees are deducted from subaccount net asset values before returns are reported, many contract owners never see them as a separate charge.
The range is substantial. Passive index subaccounts may charge as little as 0.10% to 0.30%, while actively managed strategies in specialized sectors (emerging markets, alternative investments, real estate) can exceed 1.00%. The industry average of 0.94% reflects the dominance of actively managed subaccounts in most VA product lineups.
This is an area where contract selection directly affects cost without affecting the insurance features. Two contracts can offer identical M&E charges, identical death benefits, and identical rider options while differing by 0.50% or more in subaccount expenses simply because one offers low-cost index options and the other does not. Advisors who default to the insurer’s model portfolios without examining individual subaccount expenses often miss the most controllable cost in the contract.
Adding It Up: Total Annual Cost by Contract Type
The practical question for advisors is not what any single fee layer costs in isolation but what the total annual drag looks like across different types of contracts. Table 2 assembles the layers into the cost profiles that advisors most commonly encounter.
Table 2: Total Annual Cost Comparison by VA Contract Type
| Cost Component | Commission-Based (B-Share) | Fee-Based (I-Share) | Low-Cost Direct |
|---|---|---|---|
| M&E charge | 1.25% | 0.20-0.50% | 0.15-0.35% |
| Administrative charge | 0.15-0.20% | 0.10-0.15% | 0.10% |
| Subaccount expenses (avg.) | 0.85-1.00% | 0.60-0.90% | 0.10-0.60% |
| Base annual cost | 2.25-2.45% | 0.90-1.55% | 0.35-1.05% |
| GLWB rider (if elected) | 0.95-1.15% | 0.95-1.15% | Often unavailable |
| Total with GLWB | 3.20-3.60% | 1.85-2.70% | N/A |
| CDSC (surrender charge) | 5-8% declining over 6-8 yrs | None | None |
| Separate advisory fee | None (built into M&E) | 0.50-1.50% (charged separately) | None |
Note: Fee-based (I-share) contracts require a separate advisory fee agreement. The client’s total cost includes the advisory fee plus the contract charges shown. A 1.00% advisory fee added to a 1.30% I-share base cost produces a 2.30% total, comparable to a commission-based contract but with full liquidity and fee transparency.
This table reveals why the question “how much does a variable annuity cost?” has no single answer. The distribution model, the subaccount selections, and the rider elections create a range from under 0.50% (a low-cost direct contract with index subaccounts and no riders) to over 3.50% (a commission-based contract with active subaccounts and a living benefit rider). That spread of more than three percentage points on the same product category explains much of the confusion surrounding variable annuity pricing.
Surrender Charges: The Liquidity Cost
Most commission-based variable annuities impose no front-end sales charge. Instead, the insurer recovers the broker’s commission through contingent deferred sales charges (CDSCs) applied to withdrawals that exceed the contract’s free withdrawal allowance (typically 10% of contract value per year) during the surrender period.
CDSC schedules typically start at 5% to 8% and decline by approximately 1% per year. A common schedule looks like this: 7-7-6-5-4-3-2-0, meaning a 7% penalty on excess withdrawals in years one and two, declining to zero after year seven.
Two features of surrender charges are frequently misunderstood by both clients and advisors.
First, each deposit starts its own surrender clock. A client who invests $100,000 in year one and adds $25,000 in year four has two separate surrender schedules running simultaneously. The original $100,000 (and its growth) may be fully liquid, while the $25,000 addition remains subject to charges for several more years.
Second, the free withdrawal allowance resets annually and typically applies to the greater of 10% of premiums paid or 10% of current contract value. On a $500,000 contract, that allowance provides $50,000 of annual liquidity even during the surrender period, which is sufficient for most income distribution strategies.
Fee-based (I-share) and low-cost direct contracts generally carry no surrender charges at all. Full liquidity from day one is one of the primary advantages of the advisory distribution model, and it eliminates the need for L-share or other short-surrender-period alternatives that carry higher ongoing costs.
Living Benefit Riders: The Cost-Value Calculation
Optional living benefit riders represent the most consequential fee decision in a variable annuity contract, because they can nearly double the base annual cost while providing guarantees that may or may not match the client’s actual needs.
The most common living benefit, the guaranteed lifetime withdrawal benefit (GLWB), carries an average annual charge of approximately 1.06% of the benefit base. This rider guarantees a specified withdrawal percentage (commonly 4% to 6%, depending on the contract and the owner’s age at first withdrawal) for life, regardless of how the subaccount investments perform. If the contract value drops to zero due to market losses and withdrawals, the insurer continues paying the guaranteed amount from its general account.
Enhanced death benefit riders add another layer, averaging approximately 0.51% annually for a guaranteed minimum death benefit (GMDB). These riders ensure that beneficiaries receive at least the total premiums paid (or in more generous versions, the highest anniversary contract value) regardless of market conditions at the owner’s death.
The fee analysis for riders is fundamentally different from the fee analysis for base contract costs. Base costs are pure drag on returns: they reduce the client’s account value without providing any conditional benefit. Rider costs, by contrast, purchase a defined guarantee. The question is not “is the rider expensive?” but “what is the probability that the client will need the guarantee, and what would it cost to replicate that protection through other means?”
A 65-year-old client who elects a GLWB paying 5% annually on a $500,000 benefit base receives a guaranteed $25,000 per year for life. The rider charge of approximately $5,300 per year (1.06% of $500,000) is the premium for that longevity and market-loss protection. For a client who lives to 95 and experiences a significant bear market during the withdrawal phase, the rider delivers substantial value. For a client who dies at 72 or who never needs to rely on the guarantee because markets perform well, the rider charges were pure cost.
This is not a calculation that can be made in the abstract. It requires knowing the client’s health, income needs, other guaranteed income sources (Social Security, pensions), risk tolerance, and time horizon.
The Distribution Model Shift
The single most important trend in variable annuity pricing over the past decade has been the migration from commission-based to fee-based distribution. This shift has not simply lowered costs; it has changed the structure of how variable annuity expenses work.
In the commission-based model (B-shares), the insurer pays the selling broker a commission (typically 5% to 7% of the premium) and recovers that cost through higher ongoing M&E charges and the CDSC. The client’s total cost is embedded in the contract and cannot be separately negotiated. M&E charges of 1.25% to 1.50% are standard.
In the fee-based model (I-shares), no commission is paid. The M&E charge drops dramatically (to 0.15% to 0.50%), and no surrender charge applies. The advisor charges a separate, disclosed advisory fee, typically 0.50% to 1.50% of assets under management. The client can see exactly what the advisor charges and what the insurance company charges, independently.
For a $500,000 variable annuity held for 15 years, the difference between a B-share at 2.40% total base cost and an I-share at 1.30% base cost (before advisory fee) compounds to roughly $120,000 in preserved contract value. Even after adding a 1.00% advisory fee to the I-share, the I-share client typically comes out ahead because the advisory fee applies only while the relationship exists, while the B-share’s inflated M&E charge persists for the life of the contract.
This math explains why I-share and advisory-channel variable annuity sales have grown steadily while B-share sales have declined, and why registered index-linked annuities (RILAs), which are also concentrated in the advisory channel, surpassed traditional variable annuity sales for the first time in 2024.
Where the Fee Analysis Breaks Down
Variable annuity fee comparisons can mislead advisors and clients in several specific situations.
Comparing a variable annuity’s total cost to a mutual fund’s expense ratio ignores what the annuity provides that the mutual fund does not: tax deferral, a death benefit floor, and (if riders are elected) income and accumulation guarantees. A variable annuity at 2.30% and a mutual fund at 0.60% are not interchangeable products, and the 1.70% difference is not pure waste. It is the cost of insurance features that may or may not have value depending on the client’s circumstances.
Conversely, comparing a high-cost variable annuity to a low-cost variable annuity is a legitimate apples-to-apples exercise. If two contracts offer the same death benefit, the same rider options, and similar subaccount quality, the lower-cost contract is objectively better. The insurance features do not justify paying more for identical features.
Tax deferral itself is not free. Gains distributed from a variable annuity are taxed as ordinary income, not at the lower capital gains rates available in a taxable brokerage account. For clients in high tax brackets, the tax deferral must compound long enough to overcome both the higher fee load and the less favorable tax treatment at distribution. Research on this break-even point varies, but the general consensus among practitioners is that a holding period of at least 10 to 15 years is necessary before tax deferral begins to offset the additional costs of a traditional commission-based VA. Low-cost contracts can reach that break-even faster, sometimes in under a decade.
Finally, the client’s age at purchase matters enormously. A 45-year-old with a 20-year accumulation horizon has time for tax deferral to work. A 68-year-old purchasing a VA primarily for income guarantees may never benefit from the tax deferral at all, making the rider cost the only fee that matters in the analysis.
The Client Conversation
When clients ask “how much does my variable annuity cost?”, the most useful response is not a single number but a layered answer that helps them understand what they are paying for and whether it aligns with their goals.
A practical framework for that conversation: “Your variable annuity has three categories of costs. First, there are the base insurance charges, roughly 1.4% per year, that pay for the death benefit and the insurer’s administration. Second, there are the investment management fees inside the subaccounts you selected, which run about 0.9% per year. Third, your income rider costs about 1.0% per year. That puts your total at approximately 3.3% annually. The question is whether the tax deferral, the death benefit, and the guaranteed income stream are worth that cost compared to what you could get from a different approach.”
For clients reviewing older contracts, the conversation often reveals an opportunity. A commission-based contract purchased in 2010 may carry a 1.50% M&E charge on a product line that has since been replaced by a lower-cost version from the same insurer. If the original surrender period has expired, a 1035 tax-free exchange into a modern I-share contract or a registered index-linked annuity can reduce annual costs by a full percentage point or more without triggering any tax liability.
The advisor who can quantify the cost of the existing contract, compare it to current alternatives, and present the analysis in terms the client understands is doing the work that justifies the advisory relationship.
The Advisor’s Edge
Variable annuity fee data is publicly available in every prospectus, and any advisor can look up the M&E charge on a contract. What separates the advisor who builds trust from the advisor who simply quotes numbers is the ability to connect fee analysis to client outcomes: to show when a higher-cost rider pays for itself, when a 1035 exchange preserves wealth, and when the cheapest contract is not the best one.
That analytical skill, the ability to evaluate annuity cost structures in the context of a specific client’s tax situation, income needs, and time horizon, is one of the core competencies developed in the Certified Annuity Specialist (CAS) designation program. The CAS curriculum covers not only the fee mechanics described on this page but also the suitability frameworks, exchange evaluation protocols, and living benefit analysis that turn fee knowledge into client-facing expertise.
Sources and Notes: Fee benchmarks from Fisher Investments Annuity Evaluation Service (analysis of 26,547 unique variable annuity policies, January 2020 through December 2024; reported March 2025). Fee ranges from CAS designation curriculum, Chapter 2 (Variable Annuities) and Chapter 3 (Common Annuity Features). LIMRA 2024 annuity sales data referenced for market context. Industry average M&E charge of approximately 1.25% has been widely cited by Morningstar and other data providers; the 1.19% figure from Fisher’s more recent multi-year analysis suggests a modest downward trend, likely reflecting the growing share of lower-cost advisory contracts in the marketplace. Specific fee ranges should be verified against individual contract prospectuses. This article is refreshed annually.