How much do agents make selling annuities
Annuity agents are salespeople, and like most people who sell a product or service they earn a commission on each sale. A commission is a percentage of the value of the product sold paid to the person who sold it.
Insurance and annuity agents rarely earn a regular salary, so their commissions are how they earn a living. Also, because they are essentially running their own businesses, independent insurance agents have to pay their own expenses. This includes office space, salaries for any employees they have, advertising, and other business expenses.
Annuity agents typically earn a percentage of the amount of premium paid into the annuity. So if the insurance company is paying a 7 percent commission and you contribute $100,000 to the annuity, the agent will collect $7,000.
In most cases, the agent will receive that money upfront. However, you will not see this amount deducted from your annuity. The insurance company recoups the cost by investing your premium and deducting its costs and fees, including the commission, before crediting your policy with interest. If the customers surrenders the annuity within a certain period, the agent may have to give back some or all of the commission, depending on how long the customer held on to it.
Agents can also be paid a level commission over a period of years. Another structure is called a trail commission, where the agent receives part of the commission upfront and then a lower percentage in subsequent years. In most cases, if the agent does not receive all the commission upfront, he or she will receive a higher overall amount. For annuities that allow the policyholder to contribute premium after the initial payment, the agent might also receive a percentage of those subsequent contributions. If given the choice, most agents prefer receiving their payment all at once.
Factors that determine how much agents earn
The size of the agent’s commission will depend on a variety of factors. Insurance companies will often compete for business by trying to pay higher percentages than their competitors. Certain types of annuity products will pay higher commissions than others. For example, variable annuities typically pay the highest commissions because the insurance company is assuming less of the risk for how premium is invested. Indexed annuities pay less than variables but more than fixed products because of how premium is invested. Deferred annuities pay more than immediate annuities because the insurance company doesn’t have to begin payouts for several years.
Another factor that determines the commission percentage is the annuity’s surrender period. The longer the surrender period, the higher the commission. For example, one insurer currently pays 8.5 percent on an annuity with a 14-year surrender period, but only 4 percent on one with a 5-year surrender period. The insurance company can pay a higher commission on longer surrender annuities because it has more time to earn a return on the invested premium. And if the annuity owners surrender the policy early, the surrender charge assessed will be much higher on the 14-year annuity than on the 5-year product.
The age of the annuity owner may also factor into the commission percentage. Many annuity products pay a percentage for policies sold to customers up to age 75, a lower percentage to those between 76 and 80 and an even lower percentage to those 80 and over. The reason is because more annuities nowadays pay death benefits and it’s more likely for younger people to live longer.
Bonuses and incentives
Because independent agents can sell annuities from many insurance companies, the carriers will often entice agents to sell their products with special bonuses during a given period, which are paid in addition to normal commissions. Agents can also qualify for incentives like trips to resort destinations for their total sales in a year. Insurance companies will often drive interest in one of their products by offering a commission bonus for all policies sold in a month or quarter. Therefore, be wary of an agent who insists on selling a specific product without providing options; he or she might be trying to collect on a commission bonus.
Overall, insurance companies have been paying lower commissions in recent years. This is largely due to the low interest rate environment that has limited their ability to earn returns on invested premium. Since commissions are the largest expense of offering annuities, insurance companies have had to lower the overall percentage paid to agents.
Agents are also facing competition from direct-sold annuities. They are products sold by investment companies directly to consumers. Because agents are not involved, there are no commissions paid.