Why Are Annuities So Expensive?

1. 

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   Steve Savant

   Syndicated Financial Columnist, Host of the weekly talk show Steve Savant's Money, the Name of the Game, Scottsdale Arizona

   Nearly all savings and investment product lines have expenses attached to them, annuities are no exception. But there are many types of annuities and their policy expense loads vary dramatically. Tax deferred annuities have differing crediting methods like interest rate crediting, indexed crediting or separate sub account crediting/debiting. Each of these has their own expense loads. But keep in mind that annuity expenses are often times tied to benefits not found in traditional savings and investment vehicles. So, is the price tag worth the benefit? That is a product suitability issue.

   Answered on September 7, 2013

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   David G. Pipes, CLU®, RICP®

   Business Development Officer, T.D. McNeil Insurance Services, Fresno, California

   The insurance company issuing the annuity is accepting a very great risk, a lifetime of monthly payments.  Annuitants tend to live longer than non-annuitants and that is a factor.  The other expenses of the insurance company have more to do with the accumulation phase and represent the costs of dealing in different investment programs.  There are some annuities with little to no “load” in which case you can get the benefits of an annuity without any fees or charges. 

   Answered on June 25, 2014

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   Jim Winkler

   CEO/Owner, Winkler Financial Group, Houston, Texas

   That is a great question! As an answer for you, I'd point out that there are many different annuity products out there, and like mutual funds, some have higher expenses than others. It is wise to shop around, and learn what fees and expenses will be attached to the annuity, and its riders. That said, insurance companies determine cost based on risk, and when you add a guaranteed income payout rider to your annuity, the risk of you receiving a payout that exceeds what you paid in id pretty good, so the companies will charge you more. Just like life insurance for a smoker is higher, as their health risks are higher than a non-smokers are. I always advise that you speak with an advisor that you can trust before making any investments, as they all have pros and cons to consider. If you contact me, I'll walk you through this in a little more detail. Thanks for asking!

   Answered on June 26, 2014

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