No-Load Annuity

A No-Load Annuity is a type of variable annuity that charges much lower fees and expenses than traditional annuity contracts. These annuities are seldom, if ever, sold by brokers or commission-based planners because they do not pay a commission to the salesperson. These contracts usually have a minimal or no back-end surrender charge associated with them.

No-load annuities are generally marketed directly by the issuing insurance company or through fee-based financial advisors. Investors who purchase these contracts directly from a carrier can generally expect a fairly low level of customer service. For this reason, they are probably most appropriate for experienced investors who understand the characteristics and use of annuities, and can allocate their assets among the subaccounts themselves.

An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income stream for retirees. Annuities are created and sold by financial institutions, which accept and invest funds from individuals and then, upon annuitization, issue a stream of payments at a later point in time. The period of time when an annuity is being funded and before payouts begin is referred to as the accumulation phase. Once payments commence, the contract is in the annuitization phase.

Annuities can be structured generally as either fixed or variable. Fixed annuities provide regular periodic payments to the annuitant. Variable annuities allow the owner to receive greater future cash flows if the investments of the annuity fund do well and smaller payments if its investments do poorly. This provides for a less stable cash flow than a fixed annuity, but allows the annuitant to reap the benefits of strong returns from their fund's investments.

Annuities come with substantial fees, commissions, and restrictions. Up to 3% or more per year can go to these, and that means your investment will have to return that much before you can get ahead. In addition, if you want your money prematurely, surrender fees are typically 10% of the amount invested in the early years. Investment company Fidelity has an online guide to the dizzying assortment of fees and costs associated with annuities.

Some of the larger investment companies including Vanguard, Fidelity, and Nationwide offer no-load annuities that come with much lower fees and restrictions. The downside is that you won't get advice on suitability or much else beyond how to open the account. That's fine if you're a savvy investor, but most people find annuities hard to understand with their various investment components and riders, so tread carefully before you invest in a no-load annuity; this is where a fee-based financial planner can help.