How Much Commission Does My Agent Make From My Life Insurance Purchase?
Commissions Depend on the Type of Life Insurance - Here's What You Need to Know
A life insurance agent's commission depends on a few factors, including the company's commission plan and how much life insurance the agent is selling.
Here is all the information you need to know to help you find out how much the person selling you your life insurance policy is making, and a few tips to help you understand what the options are when it comes to choosing who to buy your life insurance from.
Are Life Insurance Agents Paid by Commission or Salary?
People licensed to sell life insurance may hold several positions and compensation agreements that influence the amount of money they make.
Life insurance policy sales usually give the licensed representative compensation from a commission and sometimes salary if they are contracted employees. Many people who sell life insurance work on contract so commission may be their primary source of income. We get into the details and exact numbers below.
7 Factors That Influence How Much Money a Life Insurance Agent or Broker Makes
- The size of their client base
- How many companies they work with (captive only dealing with one insurance carrier versus non-captive)
- Their years of experience
- Whether they are licensed to sell in different categories (Personal Financial Advisor, Life Insurance Agent, Broker)
- What their compensation agreement is with the insurance company
- What their compensation agreement is with the employer, or if they are independent
- If they have expenses to pay from the commission such as rent, staff, and supplies
Other factors may impact how much money they make off your policy, but this gives you an idea of the reasons why one person may make more or less than another.
Does Life Insurance Commission Affect Your Cost of Life Insurance Policy?
Life insurance is highly competitive, and it is worth considering that for every policy sold, there were probably several that did not get sold, got rejected due to failing medical exams, or other reasons. Life insurance companies understand this, so when a sale is made the commission may be perceived as high due to the fact that the model needs to account for this.
Your life insurance premium itself doesn't change based on commission. The commission is the part of the premium the insurance company gives the representative for having made the sale, and then for providing good customer service to maintain the client through several years.
How Different Agents or Life Insurance Representatives May Get Paid
Some life insurance representatives may work as an agent for one company or many that base their primary compensation on commission, these people may receive a lower base salary, and are expected to generate the bulk of their income from commission.
Other models of compensation may include higher salaries, and less commission percentage because of the arrangement they have made in their employment contract.
If they are independent, they may even make all of the commission from the sale, however, if they work for a firm, they may have an agreement that makes it so that they are not receiving the whole commission due to the fact they have agreed to a salary instead.
As you can see the answer to how much a person makes when they sell you a life insurance policy is not straightforward. However, with the right information and questions, you can find out.
Average Salary For Insurance Agents
When you try and find out the average salary of a life insurance agent, because of the factors above, it is very hard to say. According to the Bureau of Labor Statistics, the median pay for an "insurance sales agent" is $50,560 per year or $24.33 per hour as of the latest data from 2018.
Keep in mind that this specifies a sales agent, and includes data from all insurance, not only life insurance. Because of the models described above ("commission heavy" or "salary heavy") this number varies greatly, and because it is a median, it is not showing you the high end of the more established agents, or those who sell higher valued policies.
If you look at the median pay for a Personal Financial Advisor, who may sell life insurance, the number is twice as high, $88,890 per year $42.73 per hour.
Types of Life Insurance and Commission Rates
There are different kinds of life insurance policies. The type of life insurance policy will also impact the amount of money that will be paid out in commission. The larger longer term policies will usually pay more on commission.
Term insurance lasts for a limited "term" or period of time, such as 5,10, 20 or 30 years. Whole life insurance lasts your entire life and it may build up cash value over time. and provide the possibility of borrowing money from your life insurance policy.
How Much Commission Does the Life Insurance Agent Make?
- Your agent's commissions can vary depending on the type of life insurance you choose.
- Every company is different, but life insurance agents may make 40% to 90% percent in commission of the first year premium on term life insurance. Top ranking producers may even get 100% of the full premium in the first year as commission and often 2% to 5% commission from the second to the fourth year. Subsequent year commissions may drop off or can be much lower. The amount of commission paid will vary based on the agreement the agent has with the insurance company or with their employer (if they are not contracted workers).
- Many life insurance policy commission rates may take into consideration renewal or if the client keeps the policy over time, for example, if the client cancels the policy within the first few years, some companies may charge the commission back to the producer.
Do You Pay More If You Buy From a Broker?
In all models, the payment structure for compensation adjusts for the circumstance, so you should not be paying more for life insurance if you go through a broker vs. an agent or direct through a carrier. The commissions they get are often adjusted for the circumstance and agreements they have signed.
It all depends on which insurance company is offering coverage that best suits your scenario. Brokers can often get you quotes with several companies to give you a chance to compare options. When you go through the carrier directly, they will only be offering you their products. If you are worried about added fees, ask the person quoting you if there are any added service fees and shop around for your options.
Concerns About Commissions on New Life Insurance Policies
The one-time commission on top of the standard commission paid for initiating a new life insurance policy has been a point of concern in the industry at times.
This is one important reason that before you change a life insurance policy you always want to be cautious that you are getting the right advice.
Worried Your Life Insurance Agent Is Selling You Something Only for the Commission?
A life insurance agent or broker or any financial planner should never be selling you something to profit for themselves. Yes, they need to make a living, but one piece of good news is that the sale of life insurance is regulated. In order to sell life insurance one must be licensed by the state they are practicing in.
The responsibility in the life insurance profession is to offer you products that fit your needs, so although life insurance can be profitable for someone selling life insurance (as with any job), the representative is supposed to be offering you products to fill your needs, not their own pockets. They should also be able to discuss various life insurance policy options and outline the advantages or disadvantages taking into consideration where you are at in your life.
If you feel shortchanged on the advice you've received, or question whether your agent is selling you something with an ulterior motive, you can always contact the state insurance commissioner office in your state to report your concerns or contact other agents or personal financial advisors who can give you their recommendations and then you can compare your options.
You should always feel comfortable with the person selling you life insurance and never feel pressured to buy something you are not sure of.
How to Find Out How Much Your Life Insurance Agent or Personal Financial Planner Is Making Off You
Sometimes the simplest way to find out how much your life insurance agent is making is to ask. The National Association of Personal Financial Advisors offers some great tips on finding a good representative. Here are some of the questions they recommend asking before you select a personal financial planner to help you:
- How are you compensated?
- Do you accept referral fees?
- Will you itemize the commissions you will get from the products you offer me?
Every situation is different. Every life insurance company is different. Overall, although it is interesting to know how much commission is being paid for your life insurance policy, you also need to consider:
- How much time the person has spent with you getting to know your needs
- Are they providing you with good explanations of your options
- Life insurance sales are not repeated usually, it makes sense commission may seem high
- If the person you are buying from works as an employee, they may not be getting a full commission, they may be splitting it with the firm, or taking a salary instead of commissions, meaning that even though the commission is being paid, they aren't necessarily seeing it...
The best thing you can do is talk with your agent or a Personal Financial Planner about what is best for your situation, and if you find yourself questioning whether they are selling you something just to make money, then it might be a good idea to shop around and find other options before making a decision. It is your money and your life insurance, why deal with someone you don't trust?
U.S. Bureau of Labor Statistics. "Insurance Sales Agents - Pay." Accessed March 23, 2020.
Lone Star Insurance Agency. "So What's the Difference Between a Captive Agent and an Independent Insurance Agent?" Accessed March 23, 2020.
Office of the Insurance Commissioner Washington State. "A Consumer's Insurance Glossary - Commission." Accessed March 23, 2020.
Securities Training Corporation. "How Much Does an Insurance Agent Make?" Accessed March 23, 2020.
U.S. Bureau of Labor Statistics. "Insurance Sales Agents - Summary." Accessed March 23, 2020.
U.S. Bureau of Labor Statistics. "Personal Financial Advisors - Summary." Accessed March 23, 2020.
Life Ant. "Life Insurance Commissions - How Life Insurance Agents Are Paid." Accessed March 23, 2020.
Office of the Insurance Commissioner Washington State. "A Consumer's Guide to Life Insurance," Pages 7-8. Accessed March 23, 2020.
US Insurance Agents. "How Much Do Insurance Agents Make." Accessed March 23, 2020.
Texas Department of Insurance. "Understanding Life Insurance - How Much Does Life Insurance Cost?" Accessed March 23, 2020.
California Department of Insurance. "Life Insurance Guide - Agents." Accessed March 23, 2020.
National Association of Personal Financial Advisors. "How to Find an Advisor." Accessed March 23, 2020.