Elaine Silvestrini, Annuity.org Writer
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    Elaine Silvestrini

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    Elaine Silvestrini is an advocate for financial literacy who worked for more than 25 years in journalism before joining Annuity.org as a financial writer.

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    Emily Miller, Managing Editor for Annuity.org

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    Marguerita M. Cheng, Certified Financial Planner

    Marguerita M. Cheng, CFP®, CRPC®, RICP®

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    Marguerita M. Cheng, CFP®, CRPC®, RICP®, is the chief executive officer at Blue Ocean Global Wealth. As a Certified Financial Planner Board of Standards Ambassador, Marguerita educates the public, policymakers and media about the benefits of competent and ethical financial planning. She is a past spokesperson for the AARP Financial Freedom campaign.

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  • Updated: September 8, 2022
  • This page features 19 Cited Research Articles
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APA Silvestrini, E. (2022, September 8). Annuity Fees and Commissions. Annuity.org. Retrieved October 3, 2022, from https://www.annuity.org/annuities/fees-and-commissions/

MLA Silvestrini, Elaine. "Annuity Fees and Commissions." Annuity.org, 8 Sep 2022, https://www.annuity.org/annuities/fees-and-commissions/.

Chicago Silvestrini, Elaine. "Annuity Fees and Commissions." Annuity.org. Last modified September 8, 2022. https://www.annuity.org/annuities/fees-and-commissions/.

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One of the biggest knocks on annuities is that they can be expensive. And it’s true. Commissions and fees on some annuities can really add up, especially if you don’t pay attention and ask the right questions when you buy an annuity. But, as CNN reports, not all annuities have high fees.

Different annuity types come with different costs. In general, the more complicated the annuity, the higher the costs to the consumer. Commissions and fees are generally higher for complex financial products than they are for straightforward investments.

A fixed annuity will have much lower costs than a variable or an indexed annuity. That’s because fixed annuities are relatively simple. They’re not linked to investment portfolios or indexes like the S&P 500. They pay at a rate that is specified in the contract and don’t have complicated rules.

The same goes for the addition of riders, or special contract provisions to customize the annuity to your needs. These add-ons to the contract will increase your cost. Riders can include death benefits, minimum payouts or long-term care insurance. Each rider you add, each change you make to the basic provisions of your annuity contract will add to your yearly costs. These charges can range from 0.25 to 1 percent a year.

In total, average fees on a variable annuity are 2.3 percent of the contract value and can be more than 3 percent.


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What is your goal for purchasing an annuity?

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Dig into the Contract

Often, these costs will not be apparent, as they will be built into the fine print of the contract. It’s important that you make sure you have a complete understanding of the contract.

Ask the person selling the contract a lot of questions, including what additional fees you will have to pay. If you’re working with a fee-only advisor — a planner with a fiduciary responsibility to you, the buyer — you will not pay a commission. But when dealing with a commission-based broker, make sure they tell you their commission.

Write down your understanding of all the costs and ask the agent to sign what you’ve written.

Annuities are still an attractive option for a lot of people. The key is to purchase with a full understanding of the costs and benefits so you don’t regret your decision and can enjoy the benefits of your annuity.

Interested in Buying an Annuity?
Learn about the different types of annuities and find out which one is right for you.

Annuity Costs Defined

It’s important to know what you’re paying for. Here are some of the costs you may find linked to your annuity.


All annuities have commissions, which are usually built into the price and not highlighted in the contract. Commissions are a portion of the annuity cost that is given to the agent. Usually, they’re known as trailing commissions. Trailing commissions are paid every year.

The commissions can be anywhere from 1 to 10 percent of the total value of your contract, depending on the annuity type. The more complex the annuity, the higher the commission. And the simpler and more straightforward the contract, the lower the commission. In 2014, Wells Fargo announced that it would only include fixed-indexed annuities that limited commissions to 4 percent.

Typical Commissions on Varying Annuity Types:
  • Fixed annuities are the least complex annuity type and have lower commissions than other types. Fixed index annuities can have surrender periods as low as four years, but most have 10 years with a surrender charge. The commission on a 10-year fixed index annuity ranges from 6 to 8 percent.
  • Commissions on single premium immediate annuities typically range from 1 to 3 percent.
  • Deferred income annuities, also known as longevity annuities, charge commissions of 2 to 4 percent.
  • Multi-year guaranteed annuities (MYGAs) usually have no fees, and the surrender periods range from three to ten years. Commissions on MYGAs are usually between 1 and 3 percent.
Chart Describing Typical Commissions by Annuity Type

Administrative Fees

Generally you will also have to pay an annual fee to manage and administer your annuity. This could be higher than the fees on your IRA or 401(k). Typically, it’s about 0.3 percent of the value of your annuity contract. This can also be a flat fee, perhaps $25 or $30 a year.

Surrender Charges

Many annuity contracts will have built-in time periods at the beginning, usually for a set number of years, known as the surrender-fee period. During this time, you are charged a surrender fee if you withdraw money in excess of the scheduled payment amounts. Sometimes, the contract does permit limited withdrawals.

If you withdraw more, you will incur a charge that can be as much as 7% of the value of the annuity in the first year. This usually declines by one percentage point per year until it goes away in year seven. Longer surrender-fee periods usually mean the agent gets higher commissions.

In addition, if you’re younger than 59½, you’ll also have to pay a 10% early-withdrawal fee on top of the surrender charge.

Mortality Expenses

Mortality expenses compensate the insurance company for the risk it takes and may be charged by the company as a commission. This fee can range from 0.5 to 1.5 percent of the policy value each year.

Investment Expense Ratio

The cost of managing investments in a variable annuity is covered by the investment expense ratio. Variable annuities have investment and management fees. These fees can be referred to as expense ratios, 12b-1 fees or service fees. They can range from 0.6 percent to more than 3 percent each year.

Other Fees

Other charges may include transfer charges, distribution charges, third party transfer charges, contract fees, underwriting fees, and redemption fees.

Additionally, most annuity contracts carry general fees that are often listed as distribution fees or administrative fees and can range anywhere from 0.2 percent to just over 1 percent of the annuity value. These charges are applied for the management of the contract.

Wendy Swanson, Retirement Income Certified Professional™, explains the difference between fees and commissions for an annuity.

Frequently Asked Questions About Annuity Fees & Commissions

How much does an annuity cost?

In addition to the premium you pay to fund your annuity, you will also have to pay fees to manage it. Depending on how your annuity works, you may either pay a flat annual fee or an annual percentage of the value of your annuity. The cost is typically more than fees you pay for an individual retirement account (IRA) or 401(k).

What is a rider fee on an annuity?

An annuity rider is an option – such as a death benefit – that you can add to your annuity contract. You typically pay extra for each enhancement through a rider fee. Rider fees can add up over time and should be considered carefully when deciding on an annuity rider.

How are commissions paid on annuities?

Annuity agents tend to be paid a commission based on how much you deposit into your annuity. Annuities that are more complex tend to have higher commission rates for the agent.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: September 8, 2022

19 Cited Research Articles

Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.

  1. Borzykowski, B. (2018, May 8). What are the fees on that annuity? Good luck finding them. Retrieved from https://www.financial-planning.com/news/how-to-find-fees-in-annuities
  2. Csiszar, J. (n.d.). How Do Insurance Companies Make Money on Annuities? Retrieved from https://pocketsense.com/do-companies-make-money-annuities-5122797.html
  3. Hicks, C. and Moeller, P. (2019, February 25). 15 Things You Need to Know Now About Annuities. Retrieved from https://money.usnews.com/investing/investing-101/articles/things-you-need-to-know-now-about-annuities
  4. John, C. (n.d.). How Much Does a Commission Agent Get Paid for a Fixed-Indexed Annuity? Retrieved from https://budgeting.thenest.com/much-commission-agent-paid-fixedindexed-annuity-23558.html
  5. Land, G. (2019, March 3). Ohio National Faces Flood of Litigation After Axing Life Annuity Commissions. Retrieved from https://www.law.com/2019/03/03/ohio-national-faces-flood-of-litigation-after-axing-life-annuity-commissions/
  6. Longo, T. (2019, February 20). Insurance Industry Battles Back Against Fiduciary Standard. Retrieved from https://www.fa-mag.com/news/insurance-industry-battles-back-against-fiduciary-standard-43404.html
  7. Money. (n.d.). Why Are Annuity Fees So High? Retrieved from https://money.com/collection-post/why-are-annuity-fees-so-high/
  8. Olsen, J.L. and Kitces, M.E. (2014, July 3). What you need to know about the cost of fixed annuities. Retrieved from https://www.thinkadvisor.com/2014/07/03/what-you-need-to-know-about-the-cost-of-fixed-annuities/
  9. Ritzke, C. (2017, July 25). Why Do the Pundits Hate Annuity Commissions? Retrieved from https://www.thinkadvisor.com/2017/07/25/why-do-the-pundits-hate-annuity-commissions/
  10. Rose, J. (2018, November 16). How One Woman Paid Over $3,500 in Variable Annuity Fees and Didn’t Even Know It. Retrieved from https://www.goodfinancialcents.com/variable-annuity-fees/
  11. Tank, J. (2019, March 10). Jason Tank: Explaining how a variable annuity works. Retrieved from https://www.record-eagle.com/news/business/jason-tank-explaining-how-a-variable-annuity-works/article_24e6f1af-3cb1-5c82-a655-8b248e8b829e.html
  12. Texas Department of Insurance. (2022, May 2). Annuities Guide. Retrieved from https://www.tdi.texas.gov/pubs/consumer/cb078.html
  13. The Motley Fool. (2019, March 17). Americans Overwhelmingly Lack Knowledge About This Key Financial Product. Retrieved from https://www.foxbusiness.com/markets/americans-overwhelmingly-lack-knowledge-about-this-key-financial-product
  14. Thornton, N. (2018, October 10). Is the commission-based annuity market primed for disruption? Retrieved from https://www.benefitspro.com/2018/10/10/is-the-commission-based-annuity-market-primed-for/
  15. Thrivent. (2022, July 20). Annuity Withdrawals: What You Need to Know. Retrieved from https://www.thrivent.com/insights/annuities/annuity-withdrawals-what-you-need-to-know
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  17. U.S. Internal Revenue Service. (2022, May 19). Topic No. 558 Additional Tax on Early Distributions From Retirement Plans Other Than IRAs. Retrieved from https://www.irs.gov/taxtopics/tc558
  18. U.S. Securities and Exchange Commission. (2011, April 18). Variable Annuities: What You Should Know. Retrieved from https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/updated-5
  19. Zacks. (n.d.). Annuity Fee Comparisons. Retrieved from https://finance.zacks.com/annuity-fee-comparisons-11353.html