Variable Annuity Share Classes
Last updated: February 2026
The share class a client buys determines every dollar they pay for the life of a variable annuity contract. It determines the mortality and expense charge deducted daily from subaccount assets, whether a surrender charge applies if circumstances change, and whether the advisor who recommended the product has an ongoing financial incentive to service it. Two investors can own the same variable annuity from the same insurer, with the same subaccounts and the same living benefit rider, and one can pay 1.5% more annually than the other for the next twenty years. The only difference: the letter on the share class.
That distinction has grown more consequential as the advisory landscape evolves. The fastest-growing segment of the variable annuity market is the I-share: a stripped-down, no-commission contract designed for fee-based advisory relationships. Fee-based VA and FIA sales doubled between 2020 and 2024, reaching $7.7 billion according to LIMRA. Yet most public discussions of VA share classes still treat I-shares as an afterthought, a footnote below the traditional B-share and L-share models. This article corrects that imbalance by examining every major share class through the lens of what it actually costs, who it compensates, and which client relationships it serves.
The Five Share Classes That Matter
Variable annuity share classes evolved alongside changes in advisor compensation, regulatory expectations, and client demand for transparency. The original system was simple: B-shares dominated the market because the no-upfront-cost structure made them easy to present to clients. Over time, insurers introduced alternatives to address different holding period expectations, fee preferences, and distribution models.
Five share classes account for virtually all VA sales today. Each one represents a different answer to the same question: who bears the cost of distribution, and when do they bear it?
Table 1: Variable Annuity Share Class Comparison
| Share Class | Upfront Charge | CDSC Period | Typical M&E Range | Ongoing Cost Relative | Best Suited For |
|---|---|---|---|---|---|
| B-Share | None | 5-8 years | 1.25-1.50% | Highest ongoing | Long-term commission accounts |
| A-Share | 3-5% of premium | 0-3 years | 0.75-1.25% | Moderate ongoing | Large deposits with breakpoints |
| L-Share | None | 3-4 years | 1.30-1.75% | Highest M&E | Shorter anticipated holding periods |
| C-Share | None | None | 1.50-1.75% | High ongoing, no exit cost | Uncertain holding periods |
| I-Share | None | None | 0.15-0.50% | Lowest ongoing | Fee-based advisory relationships |
B-Shares: The Traditional Workhorse
B-shares have been the industry standard since variable annuities became a mainstream product. For decades, they accounted for the majority of VA sales because their structure appealed to both advisors and clients on the surface: no upfront cost to the investor, with 100% of the premium going to work immediately.
The economics work like this. The insurer pays the selling advisor a commission at the time of sale, typically 4-7% of premium. To recoup that outlay, the insurer charges a higher ongoing M&E fee (usually 1.25-1.50% annually) and imposes a contingent deferred sales charge (CDSC) that penalizes withdrawals exceeding the standard 10% annual free withdrawal allowance during the surrender period.
A typical B-share CDSC schedule declines over seven or eight years: 7%, 6%, 5%, 4%, 3%, 2%, 1%, then zero. After the surrender period ends, the client can move money freely, but the higher M&E charge persists for the life of the contract. That persistence is the detail most conversations about B-shares underemphasize. The surrender charge eventually disappears; the elevated M&E does not.
On a $300,000 contract, the difference between a B-share M&E of 1.35% and an I-share M&E of 0.25% is $3,300 per year. Over 20 years, that gap compounds to more than $66,000 in fee drag alone, before accounting for the lost investment returns on those deducted dollars.
B-shares create a structural incentive problem worth understanding. Because the advisor receives a large upfront commission and no ongoing trail payment (or a minimal one), the financial incentive to service the contract after the sale is limited. This does not mean B-share advisors neglect their clients. But the compensation structure does not reward ongoing engagement the way a fee-based model does.
A-Shares: Front-End Load, Lower Ongoing Cost
A-share variable annuities mirror the front-end load structure familiar from mutual funds. The investor pays a sales charge at the time of purchase, typically 3-5% of premium, and in exchange receives a contract with lower ongoing M&E charges and a shorter (or nonexistent) surrender period.
Breakpoint pricing is the primary advantage of A-shares. As the investment amount increases, the front-end load decreases. Some contracts also allow aggregation across multiple family members or across other products offered by the same insurer. For large deposits, the effective sales charge may drop below 2%.
The math favors A-shares over B-shares at longer holding periods and larger investment amounts. A client investing $500,000 who pays a 3% upfront load ($15,000) but saves 0.40% annually in lower M&E charges recoups the load difference in approximately three to four years. Beyond that point, the A-share costs less every year for the life of the contract.
A-shares never gained widespread popularity because the upfront charge creates a psychological barrier that B-shares avoid. Telling a client that $15,000 of their $500,000 will be deducted immediately is harder than telling them 100% goes to work on day one, even when the latter costs more over time. This is one of the places where behavioral finance and product distribution intersect: the objectively cheaper option can be the harder sale.
L-Shares: Shorter Surrender, Higher Cost
L-shares represent a compromise between B-share illiquidity and the higher ongoing costs that come with avoiding surrender charges entirely. The typical L-share contract carries a 3-4 year surrender period instead of the 7-8 years standard for B-shares.
The trade-off is explicit: L-share M&E charges run higher than B-shares, often 1.30-1.75% annually, to compensate the insurer for the shorter commission recovery window. The advisor still receives an upfront commission, but the insurer has less time to recoup it through ongoing charges, so the ongoing charges must be higher.
L-shares made sense for a specific client profile: someone who wanted a variable annuity with living benefits but anticipated needing full liquidity in four to five years. Retirees entering the early distribution phase, clients with planned major expenditures, or investors who simply valued the flexibility of a shorter commitment found the higher annual cost acceptable.
The challenge with L-shares is the same one embedded in every higher-M&E share class. If the client stays beyond the surrender period, the elevated M&E continues indefinitely. An L-share client who planned to hold for four years but ends up holding for fifteen pays the higher fee for eleven years longer than the surrender charge would have applied. In those cases, a B-share would have been cheaper.
C-Shares: Full Liquidity, Permanent Premium
C-share contracts eliminate surrender charges entirely. From day one, the client can withdraw any amount without penalty. No waiting period, no declining schedule, no CDSC calculation.
The cost: M&E charges in the range of 1.50-1.75%, among the highest of any share class. This elevated ongoing fee is permanent because the insurer can never recover distribution costs through a surrender charge. The advisor typically receives a smaller initial commission but a higher ongoing trail.
C-shares suit clients who genuinely cannot predict their liquidity needs. An investor who might withdraw 40% of the contract within two years, or might hold for a decade, faces an impossible share class decision with B-shares or L-shares. C-shares remove the guesswork at the cost of higher permanent fees.
In practice, C-share sales have always been a small fraction of the VA market. The majority of clients can identify a reasonable holding period range, and most advisors can match that range to a B-share or L-share schedule. C-shares fill a narrow gap.
I-Shares: The Advisory Model
I-shares represent the most significant structural change in VA distribution since the share class system was created. These contracts are designed exclusively for fee-based advisory accounts. They pay no commission to the advisor. They carry no CDSC. And they have dramatically lower M&E charges, typically 0.15-0.50% annually, because no distribution cost needs to be recovered through the contract.
The advisor’s compensation comes from a separate advisory fee, typically 0.75-1.25% of assets under management, charged outside the annuity contract. The client pays this fee directly and can see it as a distinct line item. The advisor, in turn, has an ongoing financial stake in the relationship because the advisory fee continues as long as the client holds the contract.
Every major VA issuer now offers an advisory version of its core products. Jackson markets the Perspective Advisory line. Equitable offers advisory versions of its Equitable Retirement Strategies products. Nationwide, Lincoln Financial, and others have followed with purpose-built I-share contracts or advisory wrappers on existing products.
The growth trajectory is striking. Fee-based VA and FIA sales doubled from 2020 to 2024, reaching $7.7 billion. While that figure remains small relative to the roughly $60 billion in total traditional VA sales, the trajectory and the structural forces behind it suggest the trend is accelerating. Only about half of registered investment advisors currently report selling annuities at all, according to LIMRA. The expansion of I-share products designed for the RIA channel is among the industry’s highest priorities.
What the Share Class Comparison Reveals
A side-by-side cost analysis exposes just how much share class selection affects client outcomes. Consider the same $300,000 variable annuity with identical subaccounts and a GLWB rider, purchased under three different share classes.
Table 2: 15-Year Cost Comparison ($300,000 VA with GLWB Rider)
| Cost Component | B-Share | L-Share | I-Share + Advisory Fee |
|---|---|---|---|
| M&E charge | 1.35% | 1.55% | 0.25% |
| Administrative fee | 0.15% | 0.15% | 0.10% |
| Average subaccount expense | 0.80% | 0.80% | 0.60% |
| GLWB rider | 0.95% | 0.95% | 0.80% |
| Advisory fee | 0.00% | 0.00% | 1.00% |
| Total annual cost | 3.25% | 3.45% | 2.75% |
| Annual dollar cost (on $300K) | $9,750 | $10,350 | $8,250 |
| 15-year cumulative cost (static) | $146,250 | $155,250 | $123,750 |
The I-share client in this example saves approximately $22,500 over 15 years compared to the B-share, and more than $31,000 compared to the L-share, even after paying a 1.00% advisory fee. The savings grow with the account because all charges are asset-based. On a contract that appreciates to $500,000, the annual cost gap widens proportionally.
Two important qualifications apply. First, the advisory fee introduces a layer of cost that exists regardless of the annuity. If the advisor would charge the same fee whether the client held a VA or a plain brokerage account, then the fee is not an incremental annuity cost, and the I-share advantage grows further. If the advisory fee would not otherwise apply, the comparison must include it as a genuine additional expense.
Second, I-share contracts sometimes offer lower rider charges and access to lower-cost institutional subaccounts not available in commission share classes. These differences vary by carrier and product. The table above illustrates a representative scenario, not a universal outcome.
Where the Share Class System Breaks Down
No share class is the right choice in every situation, and several common assumptions about share class selection lead to poor outcomes.
The assumption that lower cost always wins ignores the role of advice quality. An advisor who charges 1.00% on an I-share contract but provides comprehensive planning, annual reviews, and proactive rebalancing may deliver more net value than a B-share purchase where the advisor disappears after the sale. Cost matters, but it is not the only variable. What the client receives for the cost matters equally.
The assumption that B-shares are always “expensive” ignores holding period. A client who holds a B-share for 20 years and never pays a surrender charge has avoided the upfront load of an A-share and the separate advisory fee of an I-share. The higher M&E is the only incremental cost, and for some investors, that cost is reasonable for the simplicity of a bundled, all-in structure.
The assumption that I-shares are always “cheaper” ignores the advisory fee. An I-share with a 1.25% advisory fee and 0.40% M&E totals 1.65% before subaccounts and riders. A B-share with 1.35% M&E and no advisory fee is cheaper at the contract level. Whether the advisory relationship justifies the difference is a client-specific judgment.
The assumption that share class selection is permanent ignores exchange options. Some contracts offer share class conversion features after the CDSC period expires. Others allow 1035 exchanges to advisory products once a client transitions from a commission account to a fee-based relationship. These transitions are subject to FINRA suitability and Regulation Best Interest analysis, but they are available.
The Client Conversation
Share class discussions test whether an advisor can translate product mechanics into client-relevant language. Three scenarios illustrate how the conversation changes depending on the relationship.
The long-term commission client. A 52-year-old investor deposits $200,000 into a VA with a GLWB for retirement income starting at 67. The 15-year horizon comfortably exceeds any B-share surrender period. The advisor might say: “We are using the B-share version, which means there is no upfront cost. There is a surrender charge if you withdraw more than 10% in any year during the first seven years, but since your goal is to build this for retirement income, that restriction should not affect you. After year seven, you have complete flexibility.”
The fee-based advisory client. The same investor works with a fee-based advisor who already charges 0.90% on the overall portfolio. The advisor might say: “Because you are already paying an advisory fee for ongoing portfolio management, we are going to use the advisory version of this contract. It has no commission built into the cost, so the insurance charges are significantly lower. Your total cost, including my fee, will be lower than the commission version, and I have a continuing financial stake in making sure this contract serves you well.”
The uncertain-horizon client. A 64-year-old investor has $150,000 from a recent inheritance and is unsure whether she needs the money in three years or ten. The advisor might say: “Given the uncertainty about when you might need these funds, we have two good options. An L-share contract gives us full access after three to four years but costs more annually. Alternatively, if you decide to work with me on an ongoing advisory basis, the advisory version gives you full access from day one at lower ongoing cost. Let me show you how both options compare over different holding periods.”
In each case, the share class recommendation follows from the client’s situation, not from the advisor’s compensation preference. That sequence matters under Regulation Best Interest, and it matters for building the kind of trust that sustains long-term advisory relationships.
Legacy Share Classes
Earlier generations of variable annuities included share classes that have largely disappeared from new sales but persist in existing contracts.
O-shares combined features of A-shares and B-shares, typically with a modest upfront charge plus a shorter surrender period. These contracts represented a middle ground that attracted some advisors in the 1990s and early 2000s but failed to gain critical mass.
P-shares offered lower ongoing M&E charges in exchange for longer surrender periods, sometimes extending 10-12 years. They appealed to investors who were certain they would hold the contract for the full term and wanted to minimize annual drag.
X-shares carried their own blend of features that varied by issuer, with no standardized industry definition.
Advisors who service books of business with legacy contracts should understand these structures but will rarely encounter them in new product offerings. For existing contracts, the key question is whether the legacy share class terms remain competitive compared to current products available through a 1035 exchange.
The Advisor’s Edge
The data on variable annuity share classes is publicly available. Any advisor can read a prospectus and find the M&E charge, the CDSC schedule, and the rider cost for each share class option. What transforms that data into client value is the ability to match the right share class to the right relationship: to calculate breakeven holding periods, to compare total cost across distribution models, to explain why an apparently “cheaper” option may not be the best choice for a particular client’s circumstances, and to navigate 1035 exchanges when legacy contracts no longer serve the client well.
Those are the skills that separate order-takers from advisors. The Certified Annuity Specialist (CAS) designation builds them through a structured curriculum covering every product type, fee layer, and regulatory consideration an annuity advisor encounters in practice.
For a deeper look at how annuity costs interact with product selection, see Variable Annuity Charges and Fee Structures.
Sources and Notes: Share class fee ranges reflect current product offerings from major VA issuers including Jackson, Equitable, Lincoln Financial, and Nationwide as of early 2026. Fee-based sales growth data from LIMRA Secure Retirement Institute. The 15-year cost comparison in Table 2 uses static assumptions for illustration; actual outcomes depend on investment returns and account value changes. This article is refreshed every 24 months or when regulatory developments affect share class structures.