Annuity Commissions and Fees

Written by Hersh Stern Updated Tuesday, May 7, 2024

annuity commissions fees

The #1 question I'm most-often asked is, "Why do annuities charge such high commissions?"

It's true, some insurance companies pay their agents as much as 10% for selling certain types of annuities.

All annuity commissions are not the same

The bad rap for high commissions belongs to annuities that are indexed to the stock market. It's important not to lump all the different types of annuities together.

For annuities that are not indexed to the stock market, the commission paid to an agent can be as low as 1%.

So how much commission are you paid?

When you buy an annuity through our service the insurance company pays us a commission based on the type and duration of your annuity. Here are some examples of the commission percentages we receive:

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Immediate Annuities and Deferred Income Annuities

Annuities with simple features and no surrender charges, like an immediate annuity ('SPIA') or a deferred income annuity ('DIA') pay a one-time commission that varies from 1% to 5% of the premium.

The exact percentage is determined by the length of the income payment period, age of the buyer, and annuity payout option selected. For example, we may earn a 3% commission on the sale of a life annuity to a 65 year old. And we may earn 1% or less on the sale of a 5-year period certain annuity to the same buyer.

It's important to note that the commission is already built into the annuity quotes you receive. So there is no additional commission or fee you pay us nor is any commission deducted from your monthly income. The quotes on our web site are net of any commission and there are no annual fees.

Multi-Year Guarantee Deferred Annuities

A multi-year guarantee deferred annuity ('MYGA') is a type of annuity that is similar to a bank certificate of deposit ('CD'). To keep the interest rates on their MYGA offerings competitive with interest rates on bank CDs, insurance companies typically pay a lower 1% to 3% commission for the sale of a MYGA annuity.

As an example, if you purchased a short term (3-4 years) MYGA through our service we would earn a 1% to 2% commission. If your MYGA was for a longer duration (5-10 years) our commission might be 3%. Generally, there are no annual fees with a multi-year guarantee annuity.

So which annuities pay agents those hefty 10% commissions you may have read about?


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Comments (18)

  1. James
    2015-08-21 15:24:38

    Hi Hersh -

    I find it hard to believe there are no fees when I buy an immediate annuity. I know you said there are no upfront or ongoing commissions. But no fees would be akin to buying a treasury bond. Is that true?

  2. Hersh Stern (
    2015-08-21 15:26:08

    Hi James-

    Yes, literally, no upfront or back-end fees. Period.

    So if you invested $100,000 in a SPIA, and if the insurance company's rate per $1,000 is $5 per month, then your $100,000 premium buys you $500 a month. Nothing is subtracted from that $500 amount. It's all yours.

    Of course, an insurance company aims to make a profit on the annuities (and other products) it sells.

    How much profit it earns depends on its ability to predict the life expectancies of its policyholders plus its ability to invest safely yet also earn a return that's greater than its costs.

    Here's how that works: Say an insurance company earns X% a year on its general portfolio of assets (bonds + mortgages + real estate holdings). It can also calculate a Y% which is the total of all its operating, sales, marketing, finance, investment, administrative, personnel, and other costs, plus its profit margin. Then the difference between X% and Y% is a percentage interest rate the company can credit on its annuities and other lines of business.

    I'll put some numbers to the above formula so you can more easily visualize it. Assume Company A earns 7% on its investments and calculates its total costs plus a profit margin to equal 4%. Then the company would be crediting 3% (which is 7% minus 4%) in its annuities. There wouldn't have to be additional fees because those were already included in the total cost calculation.


  3. Fred
    2016-01-15 09:49:11

    You mentioned TIAA in an earlier answer. I just got immediate annuity quotes from them and was surprised the TIAA quotes were lower than the ones at this web site. Why is that?

  4. Hersh Stern (
    2016-01-15 09:50:42

    Hi Fred-

    I explained (above) that TIAA pays generous salaries to its call center representatives which are not that different than the commissions an insurance agent might earn. So just because TIAA doesn't have a commissioned sales force it doesn't mean that TIAA avoids personnel-related costs in its selling operations. As they say, there's no free lunch :)

    But I believe a much more salient factor is at work here, and it relates to the actuarial assumptions TIAA makes with respect to its life annuity products.

    TIAA has been marketing insurance and annuities to educators and hospital employees for over a century. These policyholders tend to be more highly educated and have a higher healthcare utilization rate than the general population. So over the year TIAA's actuaries have become accustomed to expecting its policyholders to live longer than the general population. In other words, the TIAA actuaries assume a longer life expectancy, hence, longer payout duration, in its annuity income calculations, than do the other insurance companies. This factor on its own, is enough to cause TIAA annuity quotes to be near the bottom of our list.


  5. Wayne
    2018-07-18 08:25:05

    Can annuities be purchased directly from insurance companies without agent fees?

  6. Hersh Stern (
    2018-07-18 08:25:53

    Hi Wayne-

    Very few life insurance companies offer their annuities for direct purchase. And very few companies do not have agents.

    Those that sell directly typically price their annuities no different that when you buy the same annuities through their agents. So removing the agent's fees may not reduce your costs or increase your income.


    The reason insurance companies rarely improve their annuity rates when you buy directly from them or through their agents is that these companies don't want to create any conflicts with their existing agents, on whom they depend to market and service their products. So while it may seem reasonable to expect better pricing, in practice, that's not what's happens.

    I believe TIAA is one of the direct marketers. I suggest you call TIAA to get an annuity quote and then compare TIAA's rates with those from the companies I represent. You'll find that even as a direct seller, TIAA's rate may not be your best deal.

    There's a good reason for this, too: A typical agent's commission for a fixed income annuity is a one-time payment of 2% to 4%.

    When pricing its annuities, an insurance company considers many factors, including what it earns on its investments and how long it expects you to live. The range across companies for just these two factors alone can cause their annuity income quotes to vary by as much as 10% to 15%!

    So in practice, the 2%-4% commission by itself will rarely impact how much income you are paid by the company. Other variables have a much greater effect on your quote.

    There's another important reason the agent's commission is not really the determining factor in how much income an annuity will pay you. I'd like to use TIAA, again, as an example.

    While it's true that TIAA does not have an outside sales force so it may not be paying anyone a "commission", TIAA nonetheless does have a large inside sales team who answer the phones, process requests and who are being paid nice salaries and need office space, equipment, etc. to do their work. So how different is it really if TIAA were to pay agents to sell its annuities versus paying employees to sell its annuities?

    When you look at commissions from this perspective you realize that all that's happening is the insurance company is outsourcing its sales activities to a third-party and paying that party what it would have been paying it own sales team.

    From the agent's perspective, the commission helps him to recover his operating and overhead expenses. And yes, there's a profit margin to pay him for taking the risk that he may not earn anything if his products are not attractive.


  7. Carole
    2018-10-26 10:10:37

    According to the annuity calculator, on an investment of $200K with any balance not used going to my beneficiaries, I would receive $1,072 a month for life. I understand annuities have high fees.

    When and how are the fees collected? What is the typical fee for annuities?

  8. Hersh Stern (
    2018-10-26 10:13:35

    Hi Carole,

    Our online calculator provides single premium immediate annuity (SPIA) and deferred income annuity (DIA) quotes. The good news is that NEITHER of these types of annuities charge any fees at any point. In other words, the quoted income is actually what you will receive from the insurance company.

    Generally, when you hear that annuities have "high fees" it is in regards to variable annuities, which can charge 3% - 4% each year. Fixed index annuities can also charge around 1% per year in fees. Our calculator is not showing quotes for either of these types of annuities.

    I hope that you find this information helpful. Please let me know if you have any additional questions.


  9. Rodney
    2018-10-30 14:36:45

    I am 52 years of age. If I decide to ladder approximately $500,000 in annuities at around $150k per annuity, probably initially a DIA commencing in three years, and leading up to an SPIA purchased at 55.

    Is the commission at the end of the day greater for a SPIA than if one three year commencement DIA was purchased now? There are other considerations as to why I would like to ladder the annuities in terms of purchase.

  10. Hersh Stern (
    2018-10-30 14:38:12

    The commission should be higher if you purchase one DIA for $500k, rather than purchasing a DIA and a couple of SPIAs. The reason is that DIA commissions are generally slightly higher than SPIA commissions. For example, DIA commissions are usually 3%-5% while SPIA commissions are 2%-3%.


  11. Fredreick
    2022-05-27 05:43:23

    Is there an annuity that acts like a CD and when it expires will give you your principal back?

  12. Kyle (
    2022-05-31 10:12:10

    Hi Frederick,

    Yes, absolutely. This would be a multi-year guaranteed annuity (or "MYGA"). Here is a link to our full list of current MYGA rates:

    - Kyle

  13. Don A.
    2022-07-31 08:24:11

    Thank you for the quotes. The information is very easy to follow.My annuity will be funded from a 403b from my former employer. Unfortunately,I will have to wait till the first week in Oct.(2022).The 403b match from my employer will not happen till the end of their 3rd. quarter.At that time,I should have an up to date balance of my 403b.I will contact you at that time. Thanks again for all the information.

  14. Kyle
    2022-08-02 07:37:58

    Hi Don,

    You're very welcome! Please feel free to give us a call at (800) 872-6684 if you need anything. We'll be very happy to help.

    - Kyle

  15. Robert S.
    2022-09-29 19:49:56

    What does "delayed processing" mean? I see it referenced next to certain insurance companies' names in your quote section. Thank you.

  16. Kyle
    2022-09-30 08:35:05

    Hi Robert,

    We put the "delayed processing" tag on a company when they are taking longer than normal to review and process new annuity applications. Generally a company should take no longer than a week to process a new application. However these companies are taking up to 3 weeks to review new applications, which can ultimately delay your 1st payment date slightly. It's just something that we want to make our clients aware of on the front-end.

    Best Regards,

  17. Anthony A.
    2023-12-25 11:43:11

    Good morning and Merry Christmas. My wife has a TIAA Traditional account which I believe is a 403b. Is it possible to transfer this to you and buy a SPIA? TIAA gives us non answers to any question we ask them.

  18. Kyle
    2023-12-29 10:58:15

    Hi Anthony,

    Yes, your wife can certainly rollover her TIAA account into a SPIA. The SPIA would be issued as a Traditional IRA, so the funding of the annuity would not be a taxable event.

    Best regards,