A life insurance agent's commission varies. It can depend on what type of life insurance the agent sells and how their company pays commission. Some free agents work for multiple insurers. Because so many people who sell life insurance work on contract, commission may be their chief source of income,
Learn the role of commission in how you buy your life insurance.
How Life Insurance Reps Are Paid
Some key factors go into how life insurance reps are paid. The size of the client base and years of experience count. They may earn more if they sell more than one type of insurance. Agents may work with only one carrier. This is known as a captive agent. Also, the rep may have to cover rent, staff, and supplies.
Does Commission Affect a Life Insurance Policy Cost?
Your life insurance premium itself doesn't change based on how much of a commission your rep gets. But It gets factored in to the price structure. It is the part of the premium the insurance company gives the rep for making the sale. It rewards them for providing a level of service that retains customers. The more times a policy holder renews, the better for the company.
Life insurance commissions factor in the time an agent spends on sales that will never happen.
For every policy sold, several will not get sold. They can be rejected due to failing medical exams. Or maybe another agent undercut the price. It's a very competitive industry.
The type of insurance policy impacts the size of the commission. Larger, longer-term policies tend to pay out more commission.
Salary For Insurance Agents
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.
The sales agent job title includes data from all forms of insurance, not just life insurance. A median does not show you the high end of the more established agents, or those who sell higher valued policies.
For instance, the median pay of a personal financial advisor who may also sell life insurance is a much higher number. Hourly median is $42.73 and the number is twice as high, $88,890 per year.
A Life Insurance Agent's Commission
Your agent's commissions can vary based on the type of life insurance you choose. Every company differs, but for term insurance policies, agents may make 40% to 90% of the first year premium as a commission. A term life policy lasts for a specific time—such as 5, 10, or 20 years.
Top-ranking producers may 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 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 salaried workers).
Whole life or cash-value policies are sometimes called universal life policies. These act like an investment and build up cash value over time. They use a different commission structure. Life insurance policy commission rates may take into account 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 who sold it.
Do You Pay More If You Buy From a Broker?
In all models, the payment structure adjusts to the circumstance. You should not pay more for life insurance if you go through a broker vs. an agent or direct through a carrier.
Focus on which insurance company offers coverage that best suits your needs. Brokers can often get you quotes with more than one company. This lets you compare options. When you go through the carrier directly, they will only offer you their products. If you are worried about added fees, ask the person quoting you if there are any added service fees. Shop around.
You could be charged a one-time commission on top of the standard commission for initiating a new life insurance policy. So before you switch policies, always be sure to ask that question and be sure you get the right advice.
Does Your Agent Only Want the Commission?
A life insurance agent or broker, or any financial planner, should never sell you something just to profit themselves. The sale of life insurance is regulated. To sell life insurance, you must be licensed by the state you are practicing in.
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 report these concerns to your state insurance commissioner. Contact other agents or personal financial advisors for recommendations. 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.
What to Ask a Life Insurance Sales Rep
The National Association of Personal Financial Advisors offers some great tips on finding a good representative. Here are some questions they suggest 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?
While it may be interesting to know how much commission is being paid for your life insurance policy, other things are as important. How much time has the person spent getting to know your needs? Are they explaining the options so you understand the choices? It is your money and your life insurance. You don't have to deal with someone you don't trust.