MediaRar
How Much Commission Do Insurance Agents Earn Per Policy?
Whenever you buy a policy from an insurance agent or broker, a commission is exchanged — one that usually does not appear on your bill. The commission is built into the cost of the policy. The insurance company pays the commission to the agent, without it being formally discussed during the sales process. Knowing how agent commissions work is critical to optimizing your own financial literacy. Knowing this also helps you understand the scope of the services and products offered to you, how much you are being charged, and what recommendations are being made to you.
Insurance agents remit the bulk of their remittance by commissions, which is a portion of the premium you pay for the insurance policy. From the least to the most, a commission varies based on the kind of insurance, the insurance company, whether the insurance agent is a broker or private, and whether the insurance policy is first-time or renewed. The more you understand these policy and commission dynamics, the more qualified you are to understand the recommendations that are made to you and the products you are offered.
The commission structure for all insurance is the same.
Because policyholder commissions are paid to the agent by the insurance company, most of the policyholders are not aware that the agents are being paid. From the perspective of the policyholder, the existing commission structure makes it appear that selling and underwriting insurance is free. In fact, the policyholder pays the insurance company a premium and the insurance company, in turn, pays the agent a portion of the premium to the agent for selling the policy and servicing the insurance contract.
In the insurance industry, a policy generally generates two types of commission. The first is the new business commission which is offered when a policy is sold and tends to be the highest commission on a policy. The second is the renewal commission, which is offered every year a policy is renewed, and is generally a lower rate than the new business commission. Additionally, some insurance companies have added bonuses to their commission structure. These can be referred to as contingency commissions, profit-sharing bonuses, or others and are offered when an insurance agent brings in policyholders which have not filed or have filed a low number of claims, offering these policyholders a lower-risk rate to insure.
Commission Percentage Rates for Life Insurance
Life insurance is widely understood to be the highest commission in the insurance industry. For both whole and universal life insurance, insurance agents can earn a commission between 70 and 120 percent of the first year’s premium for selling the policy. This creates the potential for the insurance agent to earn $700 to $1200 for selling the insurance policy to a client whose first year premium is $1000.
Term life insurance is a product that is easier to understand and more affordable. Because of its simplicity and affordability, it also offers a lower commission. Depending on the insurance company and the length of the term, the commission for term life insurance is usually between thirty and eighty percent of the first-year premium. After the first year in every life insurance policy, commission for renewals drops to between two and ten percent of the policy’s annual premium. This difference in commissions is why insurance agents have a strong preference for permanent life insurance policies over term life insurance policies, regardless of which policy better accommodates the interests of the client and their budget.
Health, Auto, and Home Insurance Agency Commission
In comparison to life insurance policies, commissions for the other main insurance lines are also modest, but still worth the effort. Insurance agents for health insurance can expect commissions between three and eight percent of the monthly premium. Some markets, however, can offer better commissions on personal policies than on work-related policies. While health insurance is expensive, that agent earns a constant and considerable commission on family insurance that costs a total of four hundred dollars a month.
When selling insurance policies for cars, companies usually pay commissions totaling between 8% and 15% of the annual premium for first time policies. For policy renewals the range tends to decline and settle between 8% and 12%. Similar numbers could be found in almost every insurance arena, such as new home insurance policies earning 10% to 15%, with with renewals earning slightly less. The same could be said for most commercial policies. However, because of the sales complexities and the higher insurance premiums, commercial policies will tend to fall into the range of 10-20% compared to personal lines of insurance policies. The exact payment of commissions will tend to differ from one insurance provider to another. For that reason, the information above should be treated as educated guesses rather than empirical, definitive ranges.
The distinction between captive agents and independent brokers.
When it comes to commissions, not all agents employ the same tactic, and the distinction between captive agents and independent brokers is essential for individuals to understand. Captive agents have employment contracts with a specific insurance provider. Insurance agents, such as State Farm, Allstate, and GEICO, only endorse and promote products for companies. Captive agents will tend to receive both salary and commission, and for this reason, premium products will not be as aggressively sold compared to a product from another insurance provider. However, they will only promote from one specific insurance company.
An independent broker makes selling deals from more than one provider possible; they can bring customers more deals, potentially, than anyone else in the industry. However, the independent broker gets compensated from his deals solely through commission. Therefore, he…
just like anyone else (except completely independent brokers – they do deals for ALL providers) – has an incentive to take the most lucrative deal per value calculated for him. It’s not fair to say they are out to deceive their clients for that reason. The better providers do allow more value – the better provider, the better deal, the more professional – and the more focused on the moral obligations to the client. Although that is a contradiction, keep that in mind while taking advice.
This Is You While You’re Buying Insurance
You could put commission value on any of the clients, but you shouldn’t avoid the clients. Although an agent has a lot of value, his knowledge and experience to put in the deal and find the right coverage, and fight for you in the end, to protect you during, that still brings a lot of value. Realistically, you can’t expect that for them, but while the agent is facing the client, he is working for. You can expect in, the relationship, client, and ultimately the client.
It is important to question your agent when they suggest particular products. Among other things, you should contact multiple providers to have something to measure against. You can go to direct insurer websites and other comparison sites to help verify the pricing being shown. For a commission free opinion, a fee-based insurance consultant can help. Instead of making a percentage off your premium, they have a set fee. It takes time and energy to follow these steps, but in the end, you’ll end up with insurance that meets your needs, not the needs of the insurance provider.
SUMMARY
The commissions that insurance agents receive should not come as a surprise if you want to be part of the insurance products offered to the general population. The commissions provide the funding for the distribution process. You can expect to pay anywhere from a few percent for car and home insurance to over 100% of the first-year premium for life products. The more informed you are, the better you can protect your finances. You’ll be more prepared to analyze the advice you receive.
This is for informational purposes only. You can expect a variability in commission rates based on insurance company, region, and the insurance products. For more information specific to your needs speak with certified insurance company.
