Commissions On Variable Annuities

Despite these advantages, variable annuities are well known for their additional costs, financial risks, and exploitation. The most prevalent issue with variable annuities is related to the commissions and additional fees associated with them.

The amount of commission paid on sale of an annuity usually depends on its face value. Thus, the more annuities they sell, the higher is the commission they earn. The commissions are typically paid to the agents monthly, based on the sales made in the previous month. The agents appointed by the insurance companies for sale of these variable annuities are also paid a ‘residual’ every year on the annual renewal of the annuity policy. Besides, bonuses and additional commissions are paid to annuity agents on achieving the pre-determined sales thresholds.

Usually, the commission earned by the insurance underwriter on variable annuity varies from 5 percent to 10 percent. This, in turn, increases the front end costs considerably, compelling the people to purchase annuities from the sales personnel. Moreover, owing to the extraordinarily high commissions that most agents from the insurance companies earn on sale of a single variable annuity, the financial advice they offer to people tends to get highly skewed or biased towards these products. This kind of lopsided financial advice is focused more on earning high fees and commissions than meeting the clients’ individual requirements. Consequently, annuity malpractice or exploitation results in many people getting misguided by the insurance companies.

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