Ordinarily, when you are about to buy a product, you expect to pay more for something that has quality. But this idea is different when it comes to guaranteed variable annuities; investors are paying more for protection than they did in recent years, though the market has already reduced substantially.

At present, a number of insurance companies have increased their variable annuity fees and cut back on guarantees associated with their variable annuity products.

Variable annuity fees are much different from other types of annuities. Fixed annuities for instance, pay specific returns for a certain period of time, similar to a CD. Variable annuities, though, can have their returns attached to riskier assets, including major stock indexes or collection of individual stocks. As a result of this, variable annuity owners bear the risk of major declines in the stock that their annuities track.

To attract risk-free averse investors who are nervous about investing in stocks, many variable annuity companies offer a variety of different guarantees that protect investors from potential losses. One type of common guarantee allows you to withdraw a certain percentage of your original investment each year for the duration of the annuity, even if the value of the annuity falls below the level at which it would support those withdrawals.

But after suffering large losses in the bear market and seeing their credit ratings suffer, insurance companies are making changes to annuity products and their associated guarantees.

For anyone who has monitored the financial meltdown, it is easy to understand why insurance companies are trying to raise more revenue from fee income on variable annuities fees. Such cases have also occurred throughout the financial industry, as banks have taken steps to shore up their company finances. Examples for this abound.

For insurance companies, since the stock market has historically trended upward over longer periods of time, the value that annuity owners received from the fees they paid on annuity guarantees was minimal and the companies got to keep those fees as pure profit. Presently, though, with the market still holding steady at 40% below its late-2007 levels, annuity sellers could remain on the hook for those guarantees for a long time before stocks recover.

But now that stocks have already dropped so far, you had thought that protection against further losses would get cheaper, not more expensive. After the huge down move we just lived through future prospects for stocks look a lot better than they did when the market was at record highs.

Before you buy a variable annuity, make sure you understand all the fees and other expenses involved. Even though the protections that annuity guarantees provide may have some value, they might not be worth a much to you as you will end up paying for them.
To get the best possible variable annuity fees, you can also go online and shop for companies with the cheap variable annuity fees which will suit you.  This is because there are bottom line variable annuity fees for particular companies.