Which charge is intended to compensate for the insurer's risk in the policy?

• A. Mortality expense
• B. Expense risk fee
• C. Investment mgmt fee
• D. State prem taxes

Answer: (B)

In a variable annuity, charges are tied to different costs and risks the insurer assumes. The fee that specifically compensates the insurer for bearing those risks is the expense risk fee. This portion covers the possibility that actual mortality experience or policy expenses may be worse than expected, helping fund guarantees and keep the insurer solvent if results aren’t as projected. The investment management fee goes to the fund managers for handling the subaccounts, not to offset insurance risk. State premium taxes are taxes paid to the state and aren’t a risk-offset charge. A simple “mortality expense” label isn’t the standard term; the risk compensation is typically described as the expense risk fee, part of the overall mortality and expense risk charge.