How Life Insurance Agents Are Paid

how are life insurance agents paid

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Picture of Jake Tamarkin, MBA

Jake Tamarkin, MBA

Jake is a nationally-licensed insurance agent with a Masters in Business Administration and CEO of Everyday Life. His expertise has been featured in: Investopedia, Life Insurers Council, Insurance Thought Leadership, Life-Annuity Agent, and Insurtech Insights.

Shopping for life insurance is always made easier by working with an expert. But are you the one paying for their time? Not exactly. An independent life insurance agency’s commission doesn’t actually impact your monthly premiums. Let’s explore how life insurance agents are paid and why partnering with an agency like Everyday Life can be beneficial for your financial planning.

Life Insurance Agent Compensation

Life insurance agents are typically compensated through commissions from the insurance companies they represent. These commissions are a percentage of the premiums you pay for your policy. Here’s a breakdown of how it works:

  1. First-Year Commissions: When you purchase a life insurance policy, the agent receives a commission based on a percentage of your first-year premium. This percentage can range from 40% to 100% or more, depending on the type of policy and the insurer.
  2. Renewal Commissions: After the first year, agents may receive smaller renewal commissions for each year you keep your policy active. These commissions are usually a lower percentage, often between 2% and 10% of the annual premium.
  3. Bonuses and Incentives: Some agents may also receive bonuses or other incentives from insurance companies for meeting sales targets or providing exceptional service.

Agent compensation is heavily regulated. The specific compensation programs and rates must be approved by the state insurance regulator, and insurers and agents both are obligated to ensure that only agents who are properly licensed and appointed as an agent of the insurer are receiving compensation.

Why You Don’t Pay More

It’s a common misconception that working with an insurance agent will increase your premiums. But in actuality, whether you find the policy through an independent agency or by going to the insurer directly, your premiums will be the same. Insurance providers use a built-in commission structure when they set their premiums to account for this.

By going through an independent agency, you’re getting an unbiased and tailored service—and supporting a local business—at no extra cost to you.

Benefits of Working with an Agent

Working with a life insurance agent offers several advantages without increasing your costs:

  1. Expert Guidance: Agents can assess your needs, explain different policy options, and recommend coverage that fits your financial goals.
  2. Personalized Service: An agent can provide personalized service, answering your questions and assisting with the application process. This can save you time and ensure you get the right coverage for your situation.
  3. Access to Multiple Insurers: Independent agents are not tied down to any one insurer. So they can offer policies from multiple reputable insurance companies, helping you compare options and find the best value.
  4. Experience With Claims: If you have to file a claim, it’s likely going to be an emotional and overwhelming point in your life. You don’t want to work with an insurer who is going to give you a runaround. Independent agents have spent countless hours communicating with these companies and already know which ones are pleasant to work with.

How to Find a Life Insurance Agent

If you’ve decided to work with a life insurance agency, get ready—there are plenty to choose from. Your best bet in narrowing it down is to look at credentials, reviews, and evaluate transparency. How clear are they about their processes? What do people say about their experience with the agency? A life insurance policy is a long-term contract. You want to make sure you’ve got the right expert at your side when you choose one.

Try Our Online Life Insurance Calculator

We spent years developing an online life insurance calculator that blends the expertise of a local life insurance agent with the digital ease of your favorite apps. We encourage everyone to give it a try before making any purchases. It’s totally anonymous, doesn’t ask for an email address, and takes less than 10 minutes.

Even if you already have a policy or have been denied life insurance in the past, another opportunity might be available to you today. It’s a great idea to reevaluate your life insurance needs after any significant life change, like getting married, moving, or having a child.Have questions? Give our team a call.

Disclaimer: The comments, opinions, and analyses expressed at Everyday Life are for informational purposes only and should not be considered individual investment, legal or tax advice.

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