January 8, 2019

How Do Insurance Agents Get Paid?

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A base salary. Commission. An incentive or bonus. All three of these payment methods define how insurance agents get paid.

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However, which payment methods are applicable depend on:

  1. Agent type
  2. Experience
  3. Location

Type of Agent Dictates Pay

Insurance agents are paid differently depending on if they are captive or independent. Here's how to tell the difference between the two:

  1. Captive insurance agents: This type of agent works solely for one specific insurance company. They work in the company's corporate headquarters or in a sales office within the areas where the company does business. They get leads from the company and represent the products it sells.

  2. Independent insurance agents: This type of agent offers products from numerous insurance companies. They do not have an allegiance to any one insurance company and usually work in their own office or as part of an independent agency.

    But they do enter into a contract that gives them binding authority to sell insurance policies on the behalf of various insurance companies. They get leads on their own and represent the customer buying the insurance.

Did You Know? Independent agents can grow their book of business faster than captive agents because they are more engaged in their community and offer more personalized service. They can often earn higher commissions but receive little to no base salary.

With both types of insurance agents, the individual agent acts as a liaison between the customer and the insurance company.

The Payment Structure of an Insurance Agent

Insurance agents get paid for bringing in new business and ensuring existing customers renew their policies.

The payment structure of an insurance agent is influenced by where they work.

  • Insurance company: Those who work as a sales agent for one insurance company, representing only that insurer's products, typically get paid in one of three ways:

    • Salary only
    • Salary plus commission
    • Salary, commission and bonus

  • Independent insurance agency: Agents who work for an independent insurance agency selling products from selected companies typically earn a small salary and commissions, OR a salary plus a bonus if the agency meets its goals.

  • Independent insurance agents: Those who work on their own from home instead of in an agency and represent numerous insurance companies are generally paid in commission only.

The Base Salary of an Insurance Agent

The 2017 median annual wage for an insurance agent is $49,710 and the hourly wage is $23.90 per hour, according to the U.S. Department of Labor's Bureau of Labor Statistics,

New agents make less than $27,180, while those with years in the business can make upwards of $125,190.

Along with a base salary, captive agents also receive an employer-sponsored benefits package, as well as supporting staff, office equipment, advertising and marketing initiatives.

Independent agents who work from home or in an agency do not have the support benefits of a captive agent.

How Much an Insurance Agent Earns in Commission Pay

An agent's base commission depends several factors like:

  • The line of insurance
  • The number of new policies sold
  • The number of renewing policies
  • The commission structure, if any, of the insurance company or agency

Captive agents typically earn a 5% to 10% commission for each auto and home insurance policy they sell. Each time the policy renews, they receive a recurring commission, which is typically less than the initial commission.

Some insurance companies use a commission percentage structure, such as 10% commission for the first year of the policy, 8% for the second year, and 6% for the third year.

Independent agents make more in commission than captive agents because they either receive no base salary or a very small one.

According to the Independent Insurance Agents & Brokers of America, Inc. (IIABA), independent agents generally earn the following range of commissions on these policy types:

  • Home or Auto Insurance: Between 8% and 15% of a new policy's first year premium and between 2% and 15% at the policy's renewal.

  • Life or Health Insurance: From 40% to 100% of a new policy's first year premium and 1% to 2% when the policy renews. Since life and health insurance commissions are front-loaded, agents usually don't receive a commission after the third policy renewal.

    At times, captive and independent agents may earn contingent commissions, which are incentive-based. Insurance companies or agencies may set certain goals for achieving contingent commissions, such as:

    • Reaching a certain volume of business
    • Policy retention
    • Growing a certain line of insurance
    • Overall profitability

    Overall, no matter the type of agent, the greater an agent's book of business, the more commissions he or she earns.

Want to know the amount of commission, incentive, or bonus your insurance agent is making on your policy? Just ask. Most U.S. states have disclosure laws that require agents and brokers to provide this information.

Bonuses and Rewards

Some insurance agents may receive quarterly, semiannual, or year-end bonuses based on their sales performance.

For captive agents, performance bonuses can add up to 20% or more of their income.

Independent agents typically do not receive performance bonuses unless they work for an independent insurance agency that offers such opportunities.

Besides bonuses, insurance producers may qualify for other types of noncash rewards, like trips or prizes, based on:

  • How much they sold overall
  • Selling a predetermined number of policies in one particular line of insurance
  • Meeting the sales goals of a particular insurance carrier

Experience Equals More Money

Experience matters when it comes to how much insurance agents can make.

For both captive and independent insurance agents, the more years working as an agent, the more customers they obtain and the more solid their reputation becomes as a trusted agent.

This relationship building translates into new business and continued renewals, increasing an agent's commission from year to year. Quite simply, the greater an agent's book of business, the greater the pay.

Location Matters

Insurance rates are determined by an area's cost of living, how many accidents occur, the overall health of its residents, the crime rate and other statistics.

For agents, location can impact insurance sales because:

  • The cost of insurance is so high that many residents would go without it.
  • People are leaving the area due to a high cost of living.
  • The location is remote, so very few people live there.
  • There are more agents in the market than potential customers.
  • There is greater competition in the location.
  • Residents tend to shop more online than locally.
  • The cost of insurance is high, so agents can earn more commission.
  • The cost of insurance is low, so agents don't earn as much commission.

What Customers Get in Return

An insurance agent's salary, commission and incentives are among many factors that go into the pricing of an insurance policy. So, what agent services are customers getting for their money?

  • The expertise of the agent: An agent knows all the ins and outs of the insurance products he or she is selling. They apply this knowledge to help customers select the best policy to meet their needs and budget.

  • Professionally licensed: Insurance agents are required to be licensed in each state in which they do business. These regulations provide safeguards to insurance customers.

  • Insurance credentials: Some insurance agents have expanded their knowledge of insurance by completing courses and passing exam requirements for insurance designations. Among the top designations are:

    • Certified Insurance Counselor (CIC)
    • Chartered Life Underwriter (CLU)
    • Chartered Property Casualty Underwriter (CPCU)
    • Commercial Lines Coverage Specialist (CLCS)
    • Accredited Advisor in Insurance (AAI)
    • Associate in General Insurance (AINS)
    • Accredited Customer Service Representative (ACSR)
    • Personal Lines Coverage Specialist (PLCS)
    • Associate in Insurance Services (AIS)
    • Healthcare Compliance Professional (HCP)
    • Group Benefits Associate (GBA)
    • Fellow, Health Insurance Advanced Studies (FHIAS)
    • Certified Financial Planner (CFP)
    • Financial Services Certified Professional (FSCP)

You'll see one or more of these designations after the insurance agent's name.

Bottom Line

The salary and potential for commission and bonuses makes an insurance agent an appealing career choice.

For customers looking for an insurance agent, knowing the payment structure of your agent provides transparency and helps build trust. Weigh this information with the agent's professionalism and expertise to build a trusting relationship.

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Is Travel Insurance Worth It


How Much Do Realtors Make

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