Which item is commonly described as a charge to cover the insurer's cost of insurance and is deducted from the separate account?

Which item is commonly described as a charge to cover the insurer's cost of insurance and is deducted from the separate account?

• A. Mortality expense
• B. Admin fees
• C. State prem taxes
• D. Sales load

Answer: (A)

In a variable annuity, ongoing fees are taken from the separate account to cover the insurer’s costs and guarantees. The charge that specifically covers the insurer’s cost of insurance and is deducted from the separate account is the mortality expense, often called the mortality and expense risk charge. This fee compensates the insurer for the protection provided and the risk the issuer assumes, and it reduces the account value over time because it’s assessed against the assets in the separate account. Administrative fees pay for servicing and administration, state premium taxes are taxes paid to the state, and sales loads are charges on the purchase or withdrawal. None of those are the ongoing charge described as covering the insurer’s cost of insurance and deducted from the separate account.

In a variable annuity, ongoing fees are taken from the separate account to cover the insurer’s costs and guarantees. The charge that specifically covers the insurer’s cost of insurance and is deducted from the separate account is the mortality expense, often called the mortality and expense risk charge. This fee compensates the insurer for the protection provided and the risk the issuer assumes, and it reduces the account value over time because it’s assessed against the assets in the separate account.

Administrative fees pay for servicing and administration, state premium taxes are taxes paid to the state, and sales loads are charges on the purchase or withdrawal. None of those are the ongoing charge described as covering the insurer’s cost of insurance and deducted from the separate account.