Although the returns to indexed annuities are linked to the equity markets, these contracts are classified as fixed annuities. Consequently, indexed annuities have the same fee and expense structures as fixed annuities.

With indexed annuities there are no up-front charges. Insurance companies protect their profit margins and manage the cost of options by putting a limit on available upside returns credited (a cap), or by charging an annual fee. Most carriers charge one or the other, but some charge both, which is why it's important for consumers to read the contract for these provisions. While there is typically no commission charged to the owner when purchasing an indexed annuity, administrative fees cover the insurance company's basic expenses. These fees can range from 1.0 to 2.25 percent.

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