Top 10 Variable Annuity Providers

The typical charge starts at 7% in the first year, declining 1% annually over the course of the first seven years of the policy. This means that if you make a withdrawal or cancel the policy in the first year, the insurance company will keep 7% of your total investment.

In the second year, the charge drops to 6%, and so on until it reaches 0% after seven years. In the last two years of the contract, many annuity issuers have altered their surrender charges so that they do not decline to 0% but only decline to 1%-3%, a setback for unaware consumers. Moreover, each time you contribute new money into your policy, this "seven-year clock" starts afresh for the newly invested portion.

Some variable annuities also carry "rolling surrender charges," meaning that even your investment gains, as they accrue to your account, are subject to the surrender charge. Under these contracts, a certain amount of the value of your policy will always be subject to a surrender charge no matter what. The only way to get out of this trap is to annuitize the policy.

Ideally, the best kind of variable annuity to own is one without any surrender charges. This may be somewhat difficult to find on your own, as about 75% of variable annuities contain some type of surrender charge.

Mortality and Expense Risk

Mortality and expense risk charges are usually a percentage of the account value around 1.2%. This charge compensates the insurance company for the risks it assumes on your behalf and expenses associated with the contract. One exception is Jefferson National Life Insurance, currently rated D-minus, which charges $20 a month regardless of your account value.

The Annual Contract Fee

Most variable annuities assess an annual contract fee of $25 to $35. This flat-rate fee guarantees the issuing insurance company an annual stream of revenue regardless of the size or performance of your personal variable annuity. Unfortunately, there is very little you can do to avoid this charge. Still, it's not a factor you can ignore when comparing variable annuities with one another and with other types of investments.

Optional Feature Fee

This fee is associated with benefits that include minimum income benefits (GMIB), guaranteed minimum accumulation benefits (GMAB) and guaranteed minimum withdrawal benefits (GMWB). The industry average fee is 0.4% to 0.45% annually, according to Annuity FYI, an annuity information and education service.

It definitely pays to shop around and compare variable annuities based on their costs and performance. But when comparing costs, remember that you must factor in the insurance costs and loads associated with the annuity to get the full picture. For starters you may want to compare with some of the top-10 rated life and health insurance companies with the greatest volume in their separate accounts as of year-end 2006.

Top 10 Variable Annuity Providers
Company	Total Assets ($ millions)	Capital Surplus ($ millions)	Separate Account ($ millions)	Financial Strength Rating
Pacific Life Ins Co.	86,142	3,218	48,340	A
Principal Life Ins	125,532	3,599	68,945	A-
John Hancock Life Ins	108,335	1,426	85,010	B+
Metropolitan Life Ins	280,557	9,198	71,533	B+
Hartford Life & Annuity Ins	83,086	1,668	76,318	B+
Nationwide Life Ins	97,060	2,682	66,962	B+
Hartford Life Ins	146,278	3,276	112,775	B
Prudential Ins Co. of America	245,817	5,973	92,445	B
AXA Equitable life Ins	131,780	6,498	85,750	B
Riversource Life Ins	74,683	3,258	46,857	B
Source: TheStreet.com Ratings