What Are the Fees and Commissions for QLACs?

••• Fees and Commissions Should Be Transparent. By Ashu Mittal / Moment / Getty Images

I love it when people say “I hate all annuities”

It is just possibly one of the most ignorant statements made about annuity products. There are at least 15 distinct annuities offered in the United States, and each one has a unique value proposition and specific policy limitations. Yes, limitations!  All annuity policies have limitations, even though most annuity sales pitches you will hear sound too good to be true.

It is always possible to research policies side by side to determine which is right for your situation, if any.

In a perfect world, the annuity industry would be totally transparent about fees and commissions paid to the agent.  Maybe that will happen in the future, but for now, I will try to carry the flag of transparency for the annuity consumer that wants to make a complete and informed decision. I am all for making as much information available to anybody trying to gather information about their own financial future. A good place to start is to make commissions and fees easy to understand.

Let’s take a look at the fee structure and commissions with QLACs (Qualified Longevity Annuity Contracts), which were approved by the IRS and the Treasury Department for use in Traditional IRAs on July 1st of 2014.

What kind of commissions are paid on QLACs?

With life insurance and annuities, the commission paid to the selling agent or advisor is “built in” to the product.

  By the way, annuities are life insurance products and issued by life insurance carriers.  “Built in” means that if you put $100,000 into a QLAC product, you will see $100,000 on your statement.  Yes, the agent did get paid.  I can assure you of that, and don’t let an agent get away with some word game or semantic nonsense that implies they are acting as a philanthropist!

  Commissions are paid to the agent from the reserves of the issuing annuity carrier.  The bottom line is that buying a QLAC is a net transaction to you, but the agent is getting compensated.

The actual level of commissions paid to the writing agent depends on the issuing carrier, and also who the agent or advisor works for.  QLACs generally pay a commission of 1.5% to 4% of the total premium amount.  So if you put $100,000 into a QLAC, the commission paid would be around $1,500 to $4,000.  The reason for this variation is that if the person who sold you the QLAC works for a large brokerage firm or agency, the house keeps a portion of the commission.  If the agent or advisor is independent, then they are typically not sharing as much (or any) of the commission.  So that’s how the annuity commission sausage is made. 

QLACs are very simplistic products that I consider to be pro-consumer.  

Part of that simplicity is the commissions paid are low.  The high Commission annuity products like variable and indexed annuities, unfortunately, are the most sold annuity types.  Hopefully, QLACs will be the impetus for that to change.

QLACs have no annual fees!

Qualified Longevity Annuity Contracts (QLACs) are pure pension products that you can use in your Traditional IRA for future income needs.

  There have no moving parts, no market attachments, and no accumulation value.  Because of this simplistic structure, there are no annual fees that are deducted from the policy.

Even if you add a COLA (Cost of Living Adjustment) rider to the QLAC policy to increase the annual income, there is no fee that is deducted from the policy. Instead of a fee, the annuity company will lower the initial payout compared to the same QLAC without a COLA rider. Remember, annuity companies have the big buildings for a reason.  They know when you are going to die, and they don’t give anything away. 

The QLAC will eventually become the most popular annuity type in the country because it is a simplistic and efficient way to plan for future income using your IRA money.  With no annual fees and low commissions to the agent, it’s only a matter of time until the annuity consumer makes this prediction come true.