Variable Annuity Share Class B Explained

A variable annuity share class B can be a complex investment, but understanding its basics can help you make informed decisions. It's a type of investment that combines insurance and investment features.

The main goal of a variable annuity share class B is to provide a guaranteed minimum income stream for a set period of time, typically 10-20 years. This can be a valuable feature for retirees who want predictable income.

Variable annuity share class B investments typically come with fees, which can range from 1.5% to 3.5% of the account balance per year. These fees can eat into your returns over time.

You can choose from various investment options within a variable annuity share class B, such as stocks, bonds, or mutual funds. This diversification can help spread out risk and potentially increase returns.

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Variable annuity share classes are used by insurance companies to slice up fees and expenses, making them more suitable for different investors.

There are different types of variable annuity share classes, including B share, C share, L share, and Bonus share.

B shares are the most popular, making up more than 75% of variable annuities sold due to their lower long-term costs.

L shares are the next most popular, accounting for approximately 11% of variable annuities sold.

The main differences between variable annuity share classes lie in their surrender charge schedules and fees, such as annuity mortality expense and administration fees.

Variable annuities sold as fee-based, or I shares, make up only about 3% of the market.

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Variable annuity share class B offers a surrender period of 5-7 years, with surrender charges that typically start at 7% and decline to 0 in year 8.

The cost of a B share is lower in exchange for a longer surrender period, which can be beneficial for investors who are willing to hold onto their investment for the long haul.

Here are the key features of a B share:

Variable annuities often come with a range of fees and expenses, which can eat into your investment returns. These fees can be categorized into four main types: premium-based, asset-based, surrender-based, and flat fees.

Some common fees associated with variable annuities include Mortality & Expense charges, which pay for the cost of providing insurance. These charges can be asset-based or premium-based, and may decline over time.

Management fees are another type of charge, paid to subaccount investment managers. These fees are typically asset-based and can vary depending on the chosen subaccounts.

Administrative fees are flat fees that cover record-keeping and other expenses. These fees can range from $30 to $50 per year, and may be waived if the value of your annuity exceeds a certain threshold.

Surrender charges can be a significant expense, especially if you need to withdraw money from your annuity before the specified period. However, most annuities allow you to withdraw a certain percentage without incurring a fee.

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Here's a breakdown of some common variable annuity fees:

Variable annuities come with different share classes, each with its own set of features and benefits. Let's take a look at the common share classes and what they have to offer.

The surrender period for B shares is typically between 5 to 7 years. This is a longer surrender period compared to other share classes.

L shares have a shorter surrender period, lasting only 4 years. This is in exchange for a higher cost.

C shares don't have a surrender period at all, making them a good option for those who need immediate access to their funds. However, C shares come with a higher cost.

O shares have a 5-year surrender period, and if you surrender before that, you'll be charged an uncollected premium charge.

I shares don't have a surrender period either, but they do come with a lower mortality and expense charge compared to other share classes.

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Here's a summary of the share classes and their features:

Variable annuity share class B is a popular choice among investors, and for good reason. Over 75% of variable annuities sold are B shares due to their lower long-term cost.

L shares are the second most popular option, making up approximately 11% of variable annuity sales. The remaining 14% is comprised of other share classes.

Only 3% of variable annuity sales are fee-based, or I shares. This suggests that most investors are opting for share classes that charge fees in the form of surrender charges or administrative fees.

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B Shares are a popular choice for variable annuities, making up more than 75% of sales due to their lower long-term costs.

The surrender period for B Shares can range from 5 to 8 years, during which a surrender charge is applied if a withdrawal exceeds the free annual withdrawal amount.

This surrender charge initially can be as high as 6 to 8% of the annuity's value, but it decreases over time until it reaches zero at the end of the surrender period.

B Shares typically have lower mortality expense and administration fees, ranging from 1.20% to 1.45% of the annuity's value.

It's worth noting that these fees are often lower compared to other share classes, making B Shares an attractive option for those looking to save on costs.

Additional reading: Class S Shares