selling life insurance often earns commissions based on a client's annual premiums. There is a wide range of commission structures in the life insurance industry. Commission refunds are illegal in most states, although that doesn't mean there aren't methods to save. See how commissions are included in insurance costs so you can make more informed decisions.

What Are Life Insurance Commissions?

Captive insurance agents are those who only represent one life, insurance provider. The possibility of additional perks, such as retirement funds and health insurance, may result in a reduction in their commission rates. Brokers are a different kind of salesperson; they are not employed by a certain organization, and they may earn up to 50% more in commissions than captive agents. The cost of the coverage already includes commissions and other fees. The fee is integrated into the premium of the same policy, regardless of who you purchase it from (agent or broker).

How Do Commissions Work?

The commission rate that an insurance agent earns often varies from product to policy, from whole life to universal life to term insurance.

Whole Life

As a rule, commissions on whole-life insurance premiums are the greatest; in certain cases, they may be as high as one hundred percent of the first year's premium. If an insurance agent offers you a policy with a $3,600 annual premium, the insurer will likely give the salesperson a commission of at least $3,600.

Universal Life

In most cases, the commission is 100% or more for all premiums paid in the first year, equal to the target premium. If you pay more than the agreed-upon amount in annual premiums during the first year, the agent's compensation will reduce. 5

Term Insurance

Term life insurance has a commission structure based on a yearly premium percentage. Those fees are far less than what an agent might make with a whole-life or even universal policy.

Other Compensation

Agents also get payment in four more unrelated methods. There are several, but some of them are:

Bonuses

Agents may earn bonuses for meeting or exceeding quotas, staying with the organization for a specific number of years, and keeping their commission rate steady over time. An agent's incentive pay is outlined in a bonus compensation plan.

Benefits

Agents, like any other worker, may be eligible for subsidized or free benefits. Plans for retirement, health care, and profit sharing are examples. An agent's benefits are a substantial part of their entire remuneration.

Expense Allowances

Expenses such as new computers, advertising, and office space are all things that some firms may cover for agencies.

Support Service

Basic office supplies and services are provided by life insurance businesses, including administrative assistants, secretaries, toll-free customer care hotlines, photocopiers, and printers. The importance of the support service to an agent's bottom line is sometimes underestimated.

Why Should You Be Concerned About Agent Commissions?

Due to the nature of the compensation structure, insurance salespeople have an incentive to sell more expensive products. Even if the commission % were the same, this might cause them to promote more costly permanent life insurance products over cheaper term life insurance. Life insurance salespeople may be enticed by the higher commissions offered by certain companies on permanent policies. If an insurance salesperson recommends permanent coverage, even if a term life policy would be more appropriate, you should keep this potential bias in mind. Last but not least, in the early years of a permanent life insurance policy, cash value building is slowed by commissions.

How Much Does an Agent Make on Average?

You can't find an "average" broker. Most real estate agents can't earn a living wage after three years. Most survivors have incomes that are sufficient to support middle- to upper-middle-class lifestyles. Some life insurance agents earn over $200,000 a year, although this is the exception rather than the rule. Only a few agents at each large firm likely make over $1,000,000 annually. It is common for these brokers to draft corporate policies for huge groups or to advise individuals with a very high net worth (i.e., hedge fund managers or even CEOs). While many people in the life insurance industry make a decent living, only a small percentage can really be called affluent.

Conclusion

Life insurance premiums already include the agent's commission rather than being tacked on afterward. Paying close attention to the drawings, asking questions about rates and riders, and considering options from other insurance providers can help you get the best value for your money.