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💰 '''Mortality and expense charge''' is a fee embedded in [[Definition:Variable annuity | variable annuity]] and [[Definition:Variable life insurance | variable life insurance]] contracts that compensates the [[Definition:Insurance carrier | insurer]] for bearing the [[Definition:Mortality risk | mortality risk]] associated with guaranteed [[Definition:Death benefit | death benefits]] and for covering the administrative costs of running the product. Often abbreviated as the M&E charge, it is deducted as a percentage of the [[Definition:Account value | account value]] — typically on an annual basis but assessed daily — and is distinct from the investment management fees charged by the underlying [[Definition:Separate account | separate account]] funds.

⚙️ The mortality component of the charge reflects the cost of the insurer's promise that beneficiaries will receive at least a minimum [[Definition:Death benefit | death benefit]], even if the [[Definition:Policyholder | policyholder's]] investment performance has been poor. The expense component covers distribution costs, [[Definition:Policy administration | policy administration]], and the insurer's general overhead. Together, these charges typically range from 0.50 % to 1.50 % of assets per year, though carriers offering richer [[Definition:Guaranteed minimum benefit | guaranteed minimum benefits]] — such as [[Definition:Guaranteed minimum income benefit (GMIB) | income]] or [[Definition:Guaranteed minimum withdrawal benefit (GMWB) | withdrawal]] guarantees — may layer on additional [[Definition:Rider | rider]] charges. Because the fee is asset-based, the insurer collects more revenue when markets rise and account values grow, aligning the carrier's interests with strong fund performance.

📋 Understanding this charge matters for both regulators and consumers because it directly reduces the [[Definition:Net investment return | net investment return]] a policyholder earns. [[Definition:State insurance department | State insurance regulators]] and the [[Definition:Financial Industry Regulatory Authority (FINRA) | FINRA]] review M&E charges during product approval to ensure they are reasonable relative to the risks assumed. For [[Definition:Insurtech | insurtech]] firms designing next-generation annuity platforms, compressing M&E charges through automation and efficient [[Definition:Claims management | claims management]] can serve as a competitive differentiator, attracting cost-conscious investors who might otherwise bypass insurance-wrapped products altogether.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Variable annuity]]
* [[Definition:Death benefit]]
* [[Definition:Separate account]]
* [[Definition:Expense ratio]]
* [[Definition:Guaranteed minimum benefit]]
* [[Definition:Surrender charge]]
{{Div col end}}

Definition:Mortality and expense charge - Revision history

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