Presenter : Braden MacDonald
Category : General Annuity Info
Topic : The Truth About Annuity Commissions.
Length : 5 Mins
Article : Annuity Commissions
Tags : annuities, annuity commissions, fees
One of the most frequently used negative claims against annuities is that they pay too high of a commission to the selling agent, and that the fees are too high. This video breaks down what they are and how they work.
The commissions for annuities can range anywhere from 2% to 8%. The general rule of thumb when it comes to annuity commissions is that the more complicated the annuity, the higher the commission will be for the selling agent. If the annuity is a straight forward multi-year guaranteed annuity (myga) that gives the policy owner a fixed interest rate for a set amount of years, the commission will be on the lower end of the spectrum (2%-3% on average). If the annuity is a more complicated and longer term product, such as an index annuity, the commission will be higher (5%-8%). The reason being, the MYGA is more of a commodity driven product that is very easy to explain and understand, while an index annuity can have many moving part with a longer surrender period, making it a more complicated sale.
Does that mean a person should only buy the simpler products with lower commissions? No, not necessarily. The type of annuity to buy is completely situational to the buyers needs. If you were to purchase a straight 10 year fixed annuity today, your interest rate would be around 3.30% (May 2020 Rates - Check Current Rates), no more and no less once you lock in the rate. However, if you purchase index annuity, you have the potential for a much higher rate of return because of the fact that the interest rate is tied to an index (S&P, Nasdaq, etc), plus other features such as lifetime income riders, nursing home benefits and enhanced death benefits to name a few. Despite the fact that the commission is higher for an index annuity, the overall value can also be much higher for the policy owner, given the right circumstance.