L Share Annuity Class

L Share Annuity Class: Meaning, How It Works, Pros & Cons

Overview

The L share annuity class is a type of variable annuity designed for investors who want earlier access to their funds. Compared with many other variable annuity share classes, L shares typically have shorter surrender periods (often 3–4 years) but higher ongoing administrative and mortality/expense (M&E) fees.

Key takeaways

• L shares allow withdrawals without surrender charges after a relatively short period (commonly 3–4 years).
• This earlier access comes with higher ongoing fees (M&E and administrative/distribution charges).
• There is no upfront sales charge with L shares, unlike some other annuity classes.
• L shares are suited to investors prioritizing liquidity over low fees.

How L-share variable annuities work

A variable annuity is a long-term insurance contract in which premiums are invested in subaccounts (stocks, bonds, money‑market funds). Investment gains grow tax‑deferred until withdrawal. In addition to investment-related costs, annuitants pay ongoing insurance-related charges:
* Mortality and expense (M&E) fee: compensates the insurer for guarantees and longevity risk.
* Administrative and distribution fees: cover servicing, recordkeeping and sales/distribution costs.
L-share contracts generally set shorter surrender periods, letting investors access funds sooner without surrender penalties, but they charge higher M&E and administrative fees to offset that flexibility.

Example

Compare two variable annuities with a $100,000 initial investment and 10% gross annual growth over five years:
* Standard annuity: 8‑year surrender period and 1.10% M&E → value after 5 years ≈ $153,157.90, but funds remain subject to surrender penalties for three more years.
* L-share annuity: 4‑year surrender period and 1.90% M&E → value after 5 years ≈ $147,614.30, but the investor can access funds without surrender charges.
This illustrates the trade-off: slightly lower net accumulation in exchange for earlier liquidity.

Advantages

• Shorter surrender periods (commonly 3–4 years) compared with many variable annuities (6–10+ years).
• No front-end sales charge (unlike some A or O share classes).
• Earlier access to principal without surrender penalties.

Disadvantages

• Higher M&E fees—L shares tend to sit near the upper end of typical M&E ranges, reducing net returns.
• Higher administrative/distribution fees (variable annuity admin fees often range up to ~0.6% annually, with L shares toward the higher end).
• Ongoing charges can continue even after the surrender period ends.
• Additional fees may apply for optional riders (e.g., enhanced death benefits, long‑term care).
• Complex fee structures make it essential to read contracts carefully.

Who should consider an L share annuity

L-share annuities make sense for investors who:
* Want the protection and tax-deferral of a variable annuity but expect to need partial access relatively soon.
* Prefer avoiding upfront sales charges and are willing to accept higher ongoing fees for shorter lockups.
* Understand annuity fee components and have compared total costs across share classes.

Practical tips before buying

• Compare total annual fees (M&E + administration + subaccount expenses), not just the surrender period.
• Ask whether M&E and administrative charges are combined into a single MEA fee and how long each charge applies.
• Review optional rider costs and death‑benefit features.
• Model net projected returns after fees for your expected holding period.
• Consider alternative solutions (other annuity share classes, no‑load annuities, or mutual funds) if lower fees are a priority.

Conclusion

L share annuities trade lower early surrender penalties and no front-end sales charge for higher ongoing fees. They can be a good option for investors who value earlier liquidity and are comfortable paying higher annual charges, but careful comparison of total costs and contract terms is essential before deciding.