Mortality and Expense Risk Charge (M&E)

What Is a Mortality and Expense Risk Charge (M&E)?

A mortality and expense risk charge is an ongoing fee in many variable annuities that compensates the insurer for insurance risks and contract-level costs. It is often described as part of the base contract charge and is one of the main reasons a variable annuity can cost more than a plain investment account holding similar underlying funds. In practice, investors usually encounter it as one component inside the total annuity fee stack.

Key Takeaways

• The M&E charge is most closely associated with a Variable Annuity.
• It is typically assessed as an ongoing percentage of contract value.
• The fee helps compensate the insurer for guarantees, insurance risk, and distribution costs.
• The M&E charge is separate from underlying fund expenses and many optional rider fees.
• Understanding the M&E charge is essential when comparing annuities against lower-cost alternatives.

How the M&E Charge Works

In a variable annuity, the contract can include several layers of cost. One layer is the mortality and expense risk charge. It is generally deducted on an ongoing basis and is built into the economics of the contract rather than appearing as a one-time ticket charge. That makes it easy for owners to underestimate how much it matters over time.

This fee is not simply a generic account-maintenance fee. It is tied to the insurer's assumption of certain insurance obligations and contract risks, which is why it is discussed separately from ordinary investment-fund expenses.

M&E Charge Versus Other Annuity Fees

The M&E charge is only one part of the broader Annuity Fee picture. A contract may also carry administrative charges, underlying subaccount expenses, and optional rider costs such as fees for an Income Rider. Comparing annuities therefore requires looking at the whole fee structure rather than one labeled percentage.

How the M&E Charge Affects Variable Annuity Cost

The M&E charge compounds over time. A contract that looks attractive on guarantees or tax deferral can still deliver disappointing net results if its recurring charges are high. Investors therefore need to decide whether the insurance features are worth the additional cost relative to simpler taxable or retirement-account alternatives.

Example Ongoing Contract Charge Reducing Net Growth

Assume an investor buys a variable annuity with investment subaccounts and a base contract charge that includes an M&E fee. Even if the underlying investments perform reasonably well, the contract's net growth will be reduced each year by that ongoing percentage charge. If the investor also adds optional riders, the all-in contract cost can be materially higher.

The Bottom Line

A mortality and expense risk charge is an ongoing fee commonly found in variable annuities. It is one of the main contract-level costs that can drag on long-term returns while paying for the insurer's risk assumptions and annuity features.