A variable annuity is a contract between you and an insurance company through which you invest a defined amount. Your investment ultimately gives you a steady income at a specific time in the future, usually in retirement. Annuities may change as this income will depend on the level of activity of the insurance company’s investments. You can buy annuities in various stock classes such as B, C and L – the class you choose will affect the fees you pay.
Class B shares
Class B stock annuities usually do not have upfront sales fees. You may incur a redundant deferred sales fee, or a return fee. This applies if you receive money from the annuity early as stated in your contract. Typically, the surrender fee decreases each year until the end of the surrender period when this fee is no longer applicable.
Grade C Shares
Five Class C shares have no upfront sales fees or return fees. This makes them a good option if you need a liquid investment, as you can withdraw your money at any time. However, you will also often have to pay higher maintenance fees to compensate for the lack of other fees.
Class L Shares
Class L stock annuities also have a return fee if you receive money from the annuity during the surrender period. However, the payback period for L-stock annuities is much shorter than for stock annuities B. This means that they typically charge a higher maintenance fee than the stock annuity B.