Demystifying Annuity Commissions and Fees
One of the most common questions we hear are about annuity commissions. People want to know how much they are, when they get paid, if they reduce the premium payment, and if there are any other fees. They've heard that annuities are expensive.
The reputation annuities have for being expensive is only deserved for some products, while other annuities are actually quite cost effective. Read on to learn which annuities are costly and which are not.
How Are Annuity Commissions Paid?
When you purchase an annuity, the commission is paid to the agent who helped you find and purchase the annuity. The commission is paid directly by the insurance company; you do not pay the commission. This commission is not deducted from your premium payment, earnings, or income.
However, it is worth mentioning that the insurer factors in all their costs while setting their rates, including the commissions they pay their agents.
That being said, it doesn't change how you should shop. For straightforward annuities like SPIAs and MYGAs, the best rate is the best rate. The commission the insurer pays their agent is already factored into the rate.
What is a Typical Annuity Commission?
There are a variety of factors that impact annuity commissions: insurer, product, annuity options, and your age are the most common factors impacting commissions. While it may seem complicated, we break down typical commissions in the table below.
Annuity Commission Overview
| Annuity Type | Typical Range | Average Commission | |
|---|---|---|---|
| Immediate Annuity (SPIA) | Immediate Annuity (SPIA) | 2% - 4% | 3% |
| Deferred Income Annuity (DIA) | Deferred Income Annuity (DIA) | 3% - 5% | 4% |
| Multi-Year Guarantee Annuity (MYGA) | Multi-Year Guarantee Annuity (MYGA) | 1.5% - 3% | 2% |
| Fixed Index Annuity (FIA) | Fixed Index Annuity (FIA) | 3% - 5% | 4% |
Note: Commission ranges are based on interquartile values. Variable annuities are not included as we do not sell variable annuity products.
Why Are Annuity Commissions Higher Than Advisor Fees?
You might look at the table above and think, “my advisor only charges me 1% per year and the average commission for an immediate annuity is 3%. Why are annuity commissions so high?”
Yes, annuity commissions tend to be higher than annual advisor fees, but annuity commissions are a one-time payment to the agent paid by the insurer, not you. Your advisor fees are paid every year to your advisor.
On top of the difference of who pays the fee, the cost disparity between a one-time fee and a recurring fee quickly becomes apparent when you consider these fees over time.
Below is a chart that shows the cumulative cost of buying an immediate annuity (paid by the insurer) against you paying an advisor an annual fee. The chart assumes a $100,000 purchase, 3% annuity commission, and 1% annual advisor fee while taking 4% withdrawals and earning 5% on your money.
How Much Are Annuity Fees?
In addition to commissions, annuities also have a reputation for having lots of fees. While it is true that some annuities have fees, many do not.
Here’s a breakdown of which annuities typically have fees and why:
- Immediate Annuity: No Fees
- Deferred Income Annuity: No Fees
- Multi-Year Guarantee Annuities: Mostly No Fee, Occasional Rider Fees (optional)
- Fixed Index Annuities: Income Rider Fees (optional)
- Variable Annuities: Multiple Fees (required & optional: management fees, mortality expenses, investment fees, rider fees, etc.)
You can see that for the most part, annuities have no or few fees. It’s really variable annuities that can have a multitude of fees that drag down your earning potential. These are the high cost annuities that earn their expensive reputation.
On top of that, variable annuities are among the most heavily marketed annuities because of their generous commissions. This can give people a bad taste if their introduction to annuities is a complicated and expensive product.
I bought two annuities this year and was extremely satisfied with the service from Immediate Annuities.com each time. In short, their staff was courteous, professional, and prompt. I would recommend them to anyone who wants to buy an annuity.
Many financial experts recommend the simpler types of annuities, like immediate annuities or multi-year guarantee annuities, for retirees.
How We Get Paid and What It Means For You
We get paid the standard commission directly from the insurance company. That means that you do not pay us at all for our annuity service. We don’t charge any additional fees.
We strive to be transparent. When you shop for an annuity we try to list all optional riders in the product descriptions (with their fees, if applicable). If you want to know our commission for a product, just ask.
We also bring decades of experience to every annuity purchase; our founder has been placing annuities since 1986. We make sure that your annuity purchase goes smoothly and is issued correctly. If there are any hiccups along the way, we address them quickly and completely. Just check out our stellar customer reviews from real, verified clients.
If you have any questions about how commissions or fees work with annuities, please feel free to call our annuity experts at (866) 866-1999.
Do annuity commissions come out of my premium?
No, annuity commissions are not deducted from your premium. The insurance company pays the annuity commission directly to the insurance agent. The quotes you get from our annuity calculators are inclusive of any costs the insurer factors into their rates. This means you pay nothing other than your premium and get the stated income or rate (not accounting for taxes).
Is there anything that can reduce my annuity premium?
For the most part, your full premium is applied to your annuity. However, some states have state premium taxes for annuities that are annuitized, like immediate annuities and deferred income annuities.
Can I buy an annuity without paying a commission?
While there are some companies that sell direct-to-consumer annuities, these are not as commonplace as traditional annuities brokered by agents. So while you may be able to find one, make sure you still comparative shop brokered and direct-to-consumer annuities to ensure you get the best rate.
Are annuity commissions negotiable?
Most annuity agents are paid the standard commission from the insurance company. While annuity brokerages may have special arrangements for a product, this is not standard. In addition to this, insurance agents are not allowed to offer commission splits or otherwise financially incentivize you to purchase through them.
How do annuity commissions compare to mutual fund commissions?
Annuity commissions are a one-time, upfront payment made by the insurance company to the agent. Mutual fund costs are paid by the mutual fund holder, you, either upfront or when selling the fund (front-end or back-end loads).
Is it better to purchase an annuity directly from the insurance company?
In many cases, you cannot purchase an annuity directly from the insurer. In most cases, calling an insurer directly simply routes you to an agent anyway, so shopping through an experienced broker costs you nothing extra and ensures you're comparing rates across multiple insurers.
Does the annuity commission affect the rate I receive?
Your annuity commission does not directly impact your rate. However, insurers factor in all of their costs when setting their rates, including commissions and in-house costs. For simple annuity products, like a SPIA or MYGA, you can compare the annuity's rate and not worry about the commission. The best rate is the best rate regardless of commission paid.
