Annuities can serve a useful purpose in a financial plan, but many investment advisors have mixed feelings about them. When used correctly, annuities can help address risks that most other investments can't, but insurance companies also charge a host of annuity fees that many purchases don't fully understand. In order to help you navigate the world of annuities, below you'll find several of the different kinds of annuity fees that you should consider in making a final decision.

1. Administration and contract maintenance charges
Insurance companies have overhead costs that they need to offset in order to offer annuities. Some annuities therefore include a specifically listed charge to maintain the policy, covering both the administrative costs of things like preparing regular statements and the ongoing expenses of monitoring the annuity contract.

2. Surrender charges
Also known as contingent deferred sales charges, most annuity companies charge you a fee if you decide to back out of an annuity contract within a set period of time. The length of the surrender-fee period can vary greatly, with some companies imposing surrender charges for seven to 10 years. Often, the surrender fee will go down over time, with the highest charge applying if you cancel your annuity very soon after purchasing it. Some annuities offer exemptions or partial withdrawals without a surrender fee, but with typical surrender charges amounting to several percent of the contract value, you need to be absolutely sure you understand the long-term nature of many annuities before you buy one.

3. Mortality and expense risk fees
Perhaps the most confusing annuity fee is the mortality and expense risk charge. This fee compensates the insurance company for taking on the risk that it will get its estimates of essential factors like life expectancy and its underlying overhead expenses wrong and therefore end up having to pay some of those costs out of its own profits. Yet this fee is often large enough to cover other expenses as well, such as sales and marketing fees, and generate profit for the insurance company as well.

In fact, these fees are often the key reason why annuity fees are higher than those for mutual funds with similar investments. Annuities do have some features that mutual funds don't, but many annuity owners never end up taking advantage of all of them, making it questionable whether they're getting their money's worth for the extra money they're spending.

4. Premium taxes
Many states charge taxes on insurance products. In turn, some insurance companies pass through those taxes to buyers of those products, including annuities.

5. Underlying investment expenses
Annuities often invest in pooled investments like mutual funds, and those funds can have expenses of their own that the insurance company will pass on to its policyholders. Specifically, annuity owners can end up paying added expenses for mutual fund management as well as marketing and distribution fees that the fund company incurs. Some underlying funds also charge short-term trading fees for shifting in and out of the fund on a frequent basis, and annuity companies can pass those costs on to investors as well. Like the mortality and expense risk fee, underlying investment fees are expressed as a percentage of the amount you have invested, and they're charged on an annual basis, representing an ongoing drain on your investment capital.

6. Rider fees
Many annuities offer additional optional features, which are sometimes called riders. These add-ons can give you attractive benefits, such as guarantees of minimum levels of income or death benefits. Typically, though, you'll have to pay an extra fee in order to take advantage of these optional guarantees.

It's important to understand that these fees aren't always broken out this clearly, and you might have to read deep into the fine print in order to get all the information you need on the annuity fees you're paying. Nevertheless, given how many annuity owners end up complaining about the level of unexpected fees and charges they have to pay, doing the legwork up front before you're committed to a contract is a smart thing for any would-be annuity contract holder to do.