Definition - What does Subaccount Charge mean?
A subaccount charge is a management fee charged for services offered to an investment fund. In terms of insurance, a subaccount is used in insurance products with a varying nature. Maintaining several subaccounts enables a policyholder to invest in several portfolios, hence increasing their future payment annuity payout.
Insuranceopedia explains Subaccount Charge
A subaccount is an account separate from the general account in an investment option. For the case of insurance, the firm maintains this account to ease management of its affairs. The insurance company may decide to keep the account or contract an external firm to manage the account. When the insurance company maintains the account on its behalf, it attracts additional revenue through charging a fee.
These subaccount charges include expenses and fees for the investments managed in a variable annuity, the operating expenses for the management fee, distribution fees, and mailing services (just to name a few). The value charged for maintaining a subaccount can be a percentage of the total value annually. Another factor that affects the charge is the type of fund. The insurance company reserves the right to initiate the change of the funds to a preferred account and notify the policyholder. If the policyholder does not change the account details as specified, then the funds are transferred to a replacement fund, which has similar objectives as the subaccount.