M&E Charge
An M&E charge (mortality and expense risk charge) is an annual fee on variable annuities and some indexed annuities, charged as a percentage of contract value. The M&E charge funds the carrier's mortality risk (the death benefit guarantee and any guaranteed minimum income features) and the operating expense and profit margin. On variable annuities, M&E charges typically range from 0.85% to 1.50% per year. M&E charges are separate from subaccount fund expenses and from any optional rider charges, all of which are additive to the annual cost.
A variable annuity has a 1.25% M&E charge. The consumer's account value averages $250,000 over the year. The M&E charge for the year is approximately $3,125, deducted from the contract value. If the subaccounts the consumer is invested in produce a gross return of 8.0% during the year, the M&E charge alone reduces the net return to 6.75%, before any fund expenses, rider charges, or administrative fees. Total all-in cost on many variable annuities runs 2.5% to 3.5% per year.
Why it matters
The M&E charge is one of the largest, most consistent drag factors on variable annuity returns. It compounds against contract value over time. On long-horizon variable annuity contracts, the M&E charge alone can consume more than 25% of cumulative pre-fee returns.
How to evaluate
Compare the M&E charge across carriers. Lower-cost variable annuities (some commission-free products available through fee-only advisors) carry M&E charges of 0.20% to 0.50% — meaningfully lower than commission-paying products. The lower M&E charge accrues directly to the consumer over decades of compounding.
In the contract
Look for "mortality and expense risk charge," "M&E charge," or "insurance charge" in the prospectus fee table. The fee table is required to disclose the M&E charge as a percentage of average daily account value.
Related terms
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