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Variable Annuity Fee Changes: Some Increase, Others Decrease


Interest rates affect insurance companies just as they affect consumers looking to purchase financial products.  Depending on the time in which an annuity was purchased, guarantees may have been better or worse.  They also can cost more for the same guarantee that was available in previous years, but in some cases an insurer might actually lower your fees.  Allianz Life Insurance Co. of North America is doing a little bit of both with their variable annuity products right now.  This information is seen in Investment News’s Darla Mercado’s article, “Some Allianz variable annuities hit with fee hikes as firm dials back.”  It’s easy to understand why insurance companies have to make changes and I hope that increases don’t bring negative press to the industry.  Good insurers look to be as fair as possible, while still maintaining their financial situation so that they can pay your guarantees for decades to come.

This month, Allianz increased the fees on their Income Protector variable annuity rider by 35 basis points.  Consumers’ individual percentage increases will vary based on when they bought the rider, but will be either 1.15%, 1.25%, or 1.30%.  This accumulation benefit helps to protect your principal and locks in some percent of your highest contract value at a point in the future.  The affected variable annuity business was sold in 2009, when interest rates were higher and Allianz was able to offer a fee structure that they simply cannot offer anymore.  Of their variable annuities with living benefits sold in 2009, somewhere between 15%-25% have the Income Protector rider.

Contracts in which the Income Protector rider is a 7% or 8% annual increase will see increasing fees of 20 basis points.  That equates to a single life increase of 1.35% or 1.40% and a joint life increase of 1.40% or 1.50%.  But some Allianz variable annuity holders have an increase of 5% annually and they will actually see a decrease in their fees.  Allianz is dropping those fees by 10 basis points, so both single and joint life products will have a fee of 1.10%.  Since interest rates have improved since those guarantees were written, Allianz is able to decrease the fees associated with some of their variable annuity income riders.  New Income Protector riders are getting one more change from those issued in the past.  Instead of a 100% guarantee issued on their highest anniversary value at the end of 10 years, consumers will now get an 80% guaranteed value.  Allianz ensures consumers that their benefits are still among the strongest in the industry and they are doing what is necessary with lower interest rates and volatile equity markets.

Written by Rachel Summit

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