What Is a No-Load Annuity?

A no-load annuity is a type of variable annuity that charges lower fees and expenses than these investments usually entail. They are not sold by commission-based brokers or planners because they do not pay a commission. They are sold directly by some financial institutions and insurance companies.

Understanding the No-Load Annuity

Like any annuity, the no-load annuity is an investment that guarantees the payment of a fixed sum of money on a regular basis. It is most often intended as an income supplement for a retiree.

No-load annuities are generally marketed directly by the insurance company that issues them, or by fee-based financial advisors.

Investors who purchase these contracts can generally expect a low level of customer service and financial advice. For this reason, they are probably most appropriate for experienced investors who understand the characteristics and uses of annuities, and are confident that they can allocate their assets among the available sub-accounts on their own.

No-Load Advantages

Annuities are created and sold by financial institutions and insurance companies, which accept and invest funds from individuals and then, when the time comes, begin issuing a stream of payments based on the earnings that have accrued.

The period of time when an annuity is being funded and before payouts begin is referred to as the accumulation phase. Once payments begin, the contract is in the annuitization phase.

Annuities can be structured 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.

Annuities usually come with substantial fees, commissions, and restrictions, compared with many other investments. Up to 3% or more per year may be charged. That means your investment will have to return more than that to grow.

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 much advice 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.

Tread carefully before you invest in a no-load annuity. You might seek the advice of a fee-based financial planner before making a final decision.