Insurance agents are paid a commission (percentage of their premium) from their insurance company. You don't pay insurance agents directly. Instead, each time you make a premium payment, the insurance company pays the stated commission rate to the agent or agency. Most insurance agents make money with commissions based on the premium charged to the policy.
The first term to know here is the base commission. The base fee is the standard fee that an insurance agent will earn for the policy sold and is expressed as a percentage of the premium. Coverage and line of business sold determine what commission is applied. For example, an insurance agent can make a 10% commission if they sell an auto insurance policy, while they can make a 15% commission on a general liability policy.
Independent agents are paid primarily on a commission basis. The more customers they serve, the more money they make. And as those customers renew each year, independent agents continue to charge fees for those policies. Life insurance agents are paid a one-time fee based on the total amount of your premiums they take away from you during the first year.
Life insurance companies have commissions that pay agents up to 115% of first-year premiums. Most life insurance agents receive a strict fee payment. With this salary structure, agents only make money when they sell policies. The commission, also known as a “charge”, is included in the cost of a policy.
You are not charged additional fees to pay an agent's commission. Choosing the right insurance plan can be complicated, and studies show that many people choose a plan that is not optimal when based solely on their judgment. Understanding how life insurance agents are paid allows you to spot signs that an agent may be acting in your best interest rather than your own. They don't have the same support of a larger carrier as captive agents, but they don't have the same bureaucracy either.
This is because if an insurance company has refused coverage, most companies will not consider it for two years from now. Specifically for new agents, when trying to become an independent agent, it can be very difficult to be appointed by insurance companies without an existing business portfolio and a solid business plan. The more experienced an agent has, the better they can anticipate and meet a customer's needs. Because all financial situations are different, there is no one-size-fits-all life insurance policy, so you should rely on a life insurance agent to help you find the right policy for your needs.
Much of the success you have and the commission you earn as an insurance agent comes from lead generation. A life insurance policy provides financial protection for your family, ensuring that they have the money they need to cover cremation or burial expenses and to pay off debts owed. The commission benefits are reduced to you being your own boss, owning what you earn, and being able to control it with your level of effort and ability to sell insurance. However, this proactive approach will ensure that you always have the most competitively priced insurance.
An insurance broker is a professional who acts as an intermediary between a consumer and an insurance company, helping the former to find the policy that best suits their needs. Agents striving to build a strong business portfolio can earn a hefty annual salary simply from renewals, and constantly adding to their business portfolio can lead to exponential revenue growth. Part of the broker's duty is to understand the clients' situation, needs, and wants to find the best insurance policy within their budget. Having a firm grasp of how insurance agents make a profit is beneficial to aspiring agents, consumers, and everyone else.