10/15/2026
‼️ Things You Need To Know About Annuities: PART 10 ‼️
Answer: Hidden? No, it's all disclosed in those super easy to read 50+ page contracts. (sarcasm on the easy part) 🙄
But are there fees, costs, and penalties?
Yes, but in many different forms, so let's talk about them.
First, let me just go ahead and say that if your annuity has any type of fee, ask yourself (or agents you ask this before you sell it) , "What problem is that fee helping me solve through a benefit for the costs?"
If it doesn't help solve a problem, then it's creating one.
🌀 FEES
Standard Account Fee: Simple... the account value is charged a % (normally a flat fee) yearly. This could come in different forms in a Variable Annuity, but it could also be an advisory product and that fee goes to the agent/advisor who sold it.
Rider Fee: Essentially this is the same structure as an Account Fee, a % of the account value, but its specifically for a rider on that policy. You are paying for a specific benefit. The most common one would be an Income Rider (GLWB).
Index Option Fee: These fees are normally voluntary. Some advisors would call them "Buy Up" fees. You pay a yearly fee to allocate in that index and in return you will get a higher rate (Cap, Par, or Lower Spread). An example would be that a standard Index may have a cap of 10% but for a 1% fee it goes to 13%.
🌀 COSTS
Spread: A spread is a cost you pay on an underlying index when that index has a return. If an index returns 0, you don't pay a Spread. When an index returns 10% and had a 2% Spread, you make 8% and give up the other 2%.
Cap: A cap rate will only pay you the index performance up to a cap. I would say the cost here is that you are not getting the full upside (Yes I know an annuity isn't designed that way, but its still a cost).
Participation Rate: This is a % you are credited on an indexes performance. If you had a 50% participation rate and the index made 10%, you would make 5%. So again, you aren't getting the full upside unless the par is at 100%.
(You can have Annuities that have an index with all of these overlapping. You can also have uncapped, 100% par, and no fee indexes as well).
🌀 PENALTIES
Surrender Charge: This comes in the form of a % of the account and correlates with the length of the contract. Let's say someone purchased a 5 year annuity and wanted to move it all at year 3. In this example let's say the charge is 3%, so when they move the money, the insurance company takes 3% of the account value.
Withdrawals Over The Free Amount: This is normally associated with making withdrawals that are higher than the free amount. If the free amount is 10% and you take 15%, that 5% over the free amount will be charged the surrender charge penalty mentioned above.
Commissions: Although a commission does not come out of a policy owners account value, it comes in the form "Potentially Better Rates". We see this in the D2C market.
The More You Know.... 🧠
