Annuity Shares

Variable Annuity Share Classes

(Everything you need to know - and more)

Annuity shares

Variable annuities have features and benefits that are not available in any other investments. Of course, nothing in the investment world is free. There is a cost for the unique features of variable annuities that are reflected in fee and expense charges.

Here’s how to make sense of variable annuity share class "alphabet soup."

Contact a local independent insurance agent. They can help you decide if a variable annuity is right for you.

What Are Variable Annuity Share Classes?

Insurance companies use variable annuity share classes to slice up fees and expenses. Each share class is a combination of fees and expenses designed to suit the needs of different investors.

Variable Annuity Fee and Expense Charges

Variable annuity fees and expenses come in four flavors: Premium-based charges are a percentage of contributions. Asset-based charges are a percentage of the account value. Surrender-based charges are a percentage of money withdrawn. Flat fees are usually transaction or administrative charges.

Here’s a summary of common variable annuity fees and expenses

ChargeTypeDescription
Mortality & ExpenseAsset-basedCost of providing insurance
Mortality & ExpensePremium-basedCost of providing insurance. Charge declines over a period of years.
Management FeesAsset-basedFees paid to subaccount investment managers
Administrative FeesFlat fee Cost of record-keeping and other expenses
Surrender ChargesWithdrawal- basedCharge declines over a period of years. Withdrawals up to 10% of the account value are usually free of surrender charges.
Optional Benefit FeesAsset-basedCharges for income riders, enhanced death benefits and other optional features
Premium TaxPremium-based8 states charge a premium tax: California, Florida, Maine, Nevada, Puerto Rico, South Dakota, West Virginia, and Wyoming

Variable Annuity Share Class Features

The common share classes for variable annuities are B shares, L shares, I shares, C shares and O shares. A shares, once popular are rarely offered. Let’s take a look at the differences and benefits.

Share ClassSurrender PeriodSurrender ChargesMortality & Expense
Asset-based
Mortality & Expense
Premium- Based
Investor
Goal
B Share5 - 7 yearsTypically starts at 7% declining to 0 in year 8Yes, levelNoLower cost in exchange for a longer surrender period
L Share4 yearsTypically starts at 7% declining to 0 in year 5Yes, level for 4 years
reducing in year 5
NoHigher cost in exchange for shorter surrender period
C ShareNoneNoneYes, level. C share M&E is higher than other share classes.NoHigher cost in exchange for no surrender period
O Share5 yearsUncollected premium chargeYes, decliningYesLower cost after surrender period
I ShareNoneNoneLower than other shares.
The investment advisor charges a fee paid directly
by the investor.
NoUsed for fee-based accounts

Market Share of Variable Annuity Share Classes

More than 75% of variable annuities sold are B shares because of the lower cost in the long term. L shares are the next most popular at approximately 11%. Only 3% of variable annuities sold are fee-based, or I shares.

Why Do It Yourself?

Variable annuities can be an important part of your retirement plan. While they have many features and benefits, they are not for everyone. Contact an independent insurance agent. They can help you decide if a variable annuity is right for you.

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TrustedChoice.com Article | Reviewed by Neel Lane

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Advisor’s Guide To Annuities John Olsen

Insured Retirement Institute

Morningstar

Limra Secure Retirement Institute