When you're looking to buy most products, you expect to pay more for something that's worth more. But when it comes to guaranteed variable annuities, buyers are paying more for protection than they did in recent years -- even though the market has already dropped substantially.

Recently, a number of insurance companies have raised fees and cut back on guarantees associated with their variable annuity products. And although the protection that those guarantees provided saved many annuity owners a lot of money in the bear market, you might want to think twice about paying up for similar protection after the horse has left the barn.

How guarantees work
Variable annuities are much different from other types of annuities. Fixed annuities, for instance, pay specific returns for a certain period of time, similar to a CD. Variable annuities, though, can have their returns pegged to riskier assets, including major stock indexes or portfolios of individual stocks. As a result, variable annuity owners bear the risk of major declines in the stocks that their annuities track.

To attract risk-averse investors who are nervous about investing in stocks, many variable annuity companies offer a variety of different guarantees that protect investors from potential losses. One type of common guarantee allows you to withdraw a certain percentage of your original investment each year for the duration of the annuity, even if the value of the annuity falls below the level at which it would support those withdrawals.

But after suffering large losses in the bear market and seeing their credit ratings suffer, insurance companies are making changes to annuity products and their associated guarantees. MetLife (NYSE:MET), for instance, has reportedly raised annual expenses for guaranteed benefits. Meanwhile, AXA Financial (NYSE:AXA) has reduced the percentage on its guaranteed withdrawal benefit from 6.5% to 5%. Meanwhile, Manulife Financial's (NYSE:MFC) John Hancock unit is trying to simplify its variable annuity offerings by paring back to a single class of offerings in order to make it easier for the insurer to manage its investment risk.

Why now?
For anyone who's followed the financial crisis, it's easy to understand why insurance companies are trying to raise more revenue from fee income on variable annuities. Similar trends have appeared throughout the financial industry, as banks have taken steps to shore up their company finances. For example, Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) raised overdraft fees late last year. And in the run-up to the new credit card law, card issuers like Bank of America (NYSE:BAC) and JPMorgan Chase (NYSE:JPM) raised interest rates on millions of cardholders.

For insurance companies, since the stock market has historically trended upward over longer periods of time, the value that annuity owners received from the fees they paid on annuity guarantees was minimal -- and the companies got to keep those fees as pure profit. Now, though, with the market still holding steady at 40% below its late-2007 levels, annuity sellers could remain on the hook for those guarantees for a long time before stocks recover.

Should you pay more?
For investors, though, the argument is almost exactly the reverse. While I've never felt comfortable with the idea of paying a substantial annual fee for protection from a stock investment, I'll be the first to admit that those who did so at the height of the bull market have fared far better than most.

But now that stocks have already dropped so far, you'd think that protection against further losses would get cheaper, not more expensive. After the huge down move we just lived through, future prospects for stocks look a lot better than they did when the market was at record highs.

Before you buy a variable annuity, make sure you understand all the fees and other expenses involved. Even though the protections that annuity guarantees provide may have some value, they might not be worth as much to you as you'll end up paying for them.

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Fool contributor Dan Caplinger prefers self-insurance for nearly everything insurance-related. He doesn't own shares of the companies mentioned in this article. The Fool's disclosure policy ensures that you know everything.