What Your Life Insurance Agent Makes on You (2024)

If you've ever talked to a life insurance agent, you may have been told that taking out a bigger policy— or investing in an annuity — was the key to financial peace of mind. Before you move forward with this kind of advice, be aware that the agent has incentives for selling you certain types of policies. Afterall, the larger policy you purchase, the more money they will make.

Consider first consulting a financial advisor, who can provide you with guidance on your specific financial situation, including how much life insurance you may need.

Key Takeaways

  • Many life insurance agents receive sales commissions for the products or services they sell.
  • Agents will receive a large upfront commission based on the cost of the first year's policy premium.
  • The upfront commission can be a substantial percentage of the first year's policy cost.
  • Insurance agents will also receive ongoing or residual commissions each year the policy is in force.
  • Annuities also pay significant commissions based on the upfront value of the annuity contract.

Most professionals who sell insurance are paid largely on a commission basis. In fact, most agents aren't even employees of the carrier. More often than not, they're independent contractors who are compensated based on how much they sell, with higher commissions for certain types of products.

This doesn't necessarily mean they're giving advice that doesn't fit your financial needs. Regulations require agents to offer life insurance policies that meet certain suitability standards. A consumer can file a complaint if they find out that the coverage they purchased and that was recommended to them was inappropriate for their financial situation.

Significant Motivation to Sell

Agents are motivated to sell as much as they reasonably can. Whenever agents or brokers sell a life insurance policy, they typically take more than half of the first year’s premium. That can amount to hundreds or even thousands of dollars, depending on the size of the policy.

They often also receive renewal commissions, which can be around 5-10% of premiums for the next nine years that you keep the policy.

Renewal Commissions

Some insurance carriers are beginning to do away with renewal commissions on term life insurance policies, the most basic type of life insurance product. Term life insurance is much more affordable because it only lasts a set term and includes no cash value component.

So, sales reps may try to push a whole life policy, which is life insurance that lasts until the policyholder's death and includes a tax-advantaged cash value savings component.

Whole life coverage is more expensive, leading to more commission income for the agent. Consult with a financial advisor to determine whether buying term or whole life insurance is ideal for your situation, or if you should turn to other options like investing in securities or an annuity.

Convertible Life Insurance

When customers balk at the cost of a whole life plan, some agents may suggest convertible life insurance, which is a "blended" policy, essentially a hybrid of whole life and term insurance products. It allows you to convert a term life insurance policy to a whole policy at a later date.

Agents get a smaller commission on a convertible policy compared to a conventional whole life policy, but more than they would if you bought a term plan.

Typically, customers don't pay any more or less when they buy directly from a carrier or through a broker. The brokerage will split its commission with the life insurance agent, but the total amount of remuneration remains the same. So, if you value the personal service of a broker, you won't have to pay more to use one.

How Annuities Pay Agents

With more life insurance companies selling a variety of financial products, agents often earn even more when they sell annuities. The fixed annuity, which pays the owner a set amount each year, is still the bread-and-butter of the industry. But many reps offer products that are more complex and often pay significantly higher commissions.

For example, a variable annuity offers a cash-balance feature where the payout depends in part on the performance of different stocks, bonds, and mutual funds selected by the owner. These policies can garner commissions of 5% of the invested amount, split roughly equally between the carrier and the selling agent.

With a variable annuity, the investor is frequently charges 2.3% of the account balance in annual fees—well above most mutual-fund expense ratios—and steep surrender charges of 6% to 8%.

Another financial product with relative complexity is the equity-indexed annuity. The returns on these annuities are based on how well a benchmark such as the S&P 500 performs. In addition to being fairly complex, these products have caught flak for paying agents very generously. Sellers typically receive more than 5% commissions each time they sell one.

That doesn't mean most life insurance reps make massive incomes. According to the Bureau of Labor Statistics, the 2021 median salary for insurance agents was $49,840. 2021 is the most recently available year. The first several years of developing a customer base can be particularly challenging. Still, experts say that understanding the industry's payment model can help consumers appreciate why some agents may have a bias toward certain products over others.

What Are the Guidelines on a Typical Insurance Sales Commission?

Agents or brokers typically take more than half of the first year’s premium on the sale of a policy. That can amount to hundreds or even thousands of dollars, depending on the policy size. They often also receive renewal commissions, which can amount to as much as 10% of premiumsfor the next nine years that you keep the policy.

What Are the Inherent Difficulties of a Job in Insurance Sales?

Agents are said to often burn out within a year because of the pressure to generate a minimum amount of sales. The field may also be saturated because no college diploma is required. Also, finding qualified customers is notoriously difficult. These may be among the reasons agents are paid high commissions.

What Should Buyers Be on the Lookout for With Respect to Annuities?

Annuities typically generate higher commissions than other insurance products. While the fixed annuity remains the industry mainstay, many reps offer products that are more complex and often pay significantly higher commissions. A variable annuity might garner commissions of 5% of the invested amount, split roughly equally between the carrier and the selling agent.

The Bottom Line

When you're comparing different products, ask the agent or broker how much commission they make on each one. If they refuse to tell you, you might want to find someone who will. And, of course, shop around for quotes from several sources before buying any product.

What Your Life Insurance Agent Makes on You (2024)


What Your Life Insurance Agent Makes on You? ›

But typically, life insurance agents receive as commission 60% to 80% of the premiums you pay in the first year. They collect smaller commissions in subsequent years. Added up, 5% to 10% of all the premiums you pay over the life of the policy could go to commissions. American Council of Life Insurers.

Do life insurance agents really make a lot of money? ›

Annual income for a life insurance agent can vary from as little as $28,000 per year to as much as $125,000 per year. How much money you can make selling life insurance will depend on a variety of factors, including your own ability to convert leads to customers, as well as the area in which you live.

Can being a life insurance agent be a side hustle? ›

Are you looking for a side hustle that can help you earn some extra cash? In today's world, having multiple sources of income has become a necessity. One way to achieve this is through a side hustle. Becoming an insurance agent might just be the answer you're looking for!

Why do most life insurance agents quit? ›

One of the biggest reasons that insurance agents quit is the fact that they have unrealistic expectations. The insurance industry is huge, which leads many people to think they can easily make a large income by selling insurance.

Do life insurance agents become millionaires? ›

If you have a great work ethic and are willing to place yourself out there to establish relationships with clients, you will get more opportunities to earn a higher income. Selling insurance may even make you a millionaire.

Is it a good idea to be a life insurance agent? ›

Those who have a knack for selling life insurance, and the perseverance to grind through the tough early years, can make a lot of money and retire with a high degree of financial worth. However, life insurance agents, to be successful, must accept short-term pain in exchange for long-term gain.

Why is it hard to sell life insurance? ›

Difficulty in finding leads

Life insurance agents are often responsible for finding customer leads on their own. Although there are some insurers that provide staff with leads, there's a strong likelihood that these may have already been contacted by several other insurance agents.

Which life insurance company pays agents the most? ›

Top companies for Insurance Agents in United States
  • Family First Life. 3.5 $114,181per year. 417 reviews54 salaries reported.
  • New York Life. 3.7 $80,828per year. 3,913 reviews257 salaries reported.
  • Farmers Insurance Group. 3.5 $67,888per year. ...
  • Aflac. 3.5 $64,459per year. ...
  • GEICO. 3.2 $62,402per year. ...
  • Show more companies.

What is the best insurance to sell? ›

Life insurance is the most profitable—and the hardest—type of insurance to sell. With the highest premiums and the longest-running contract, it brings in cash over a long period of time. In the first year, agents make the largest annual sum on a policy, bringing in anywhere from 40–120% of the policy premium.

What is the highest salary for a life insurance agent? ›

Life Insurance Agent Salary in California
Annual SalaryHourly Wage
Top Earners$137,179$66
75th Percentile$120,400$58
25th Percentile$56,700$27

Why are insurance agents so rich? ›

One of the primary reasons insurance agents can accumulate wealth is their commission-based income structure. Unlike salaried employees, agents earn a percentage of the premiums they sell to clients. As they build a client base and generate more sales, their income potential increases.

What are the cons of being an insurance agent? ›

Unpredictable Income

While the insurance industry is stable and the income is lucrative, it can sometimes be hard to plan ahead and know where your next paycheck will come from, since your income may be solely based on sales made. To succeed in this field, you must be a go-getter.

What is the hardest part of being an insurance agent? ›

An agent who is only out to earn a commission, regardless of the needs of the client, is not likely to last long in the business. Agents and brokers who listen carefully to what their clients and prospects say will be able to earn their trust, which is the hardest part of their job.

How long does it take to make money as an insurance agent? ›

Most businesses don't make any profit in their first year of operating. It could take anywhere from 18 to 24 months for your insurance sales to actually provide profit. Don't feel discouraged. Every small business owner has to clear this hurdle.

Is it hard to make money as an insurance agent? ›

It is not easy to make a living in insurance, but it is not as hard as you might think. As with any type of sales, becoming an insurance agent can be one of the best paying hard jobs or a terrible paying easy job. Dedicated agents will become successful at insurance sales, just like at any other job.

What percentage of life insurance agents succeed? ›

What is the Success Rate for Insurance Agents? According to the Insurance Journal, the success rate for new insurance agents ranges between 30% and 50%. Within three years of entering the insurance industry, the success rate drops to 11%.

Is it hard to make money as a life insurance agent? ›

The career of a life insurance agent is lucrative but involves constant hustling, networking, and many instances of rejection before a sale is ever made.

Which life insurance agents make the most money? ›

Top companies for Insurance Agents in United States
  • Family First Life. 3.5 $114,181per year. 417 reviews54 salaries reported.
  • New York Life. 3.7 $80,828per year. 3,913 reviews257 salaries reported.
  • Farmers Insurance Group. 3.5 $67,888per year. ...
  • Aflac. 3.5 $64,459per year. ...
  • GEICO. 3.2 $62,402per year. ...
  • Show more companies.
Apr 22, 2024

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