It’s common knowledge that insurance agents earn commissions from selling policies to individuals or businesses. What is not so commonly known, however, is that there’s much more to the earning process than meets the eye. So, how do insurance agents make money?
If you’re looking for a way to ensure financial security and create the opportunity for future wealth, then becoming an insurance agent may be what you’re looking for. But before you dive into the industry, it’s important to explore the different ways in which insurance agents can generate income, and why a career in this field may be an attractive option.
How Do Insurance Agents Get Paid?
Commissions are the most common way insurance agents make money. When an agent sells an insurance policy to a customer, the insurance company pays the agent a commission based on the premium paid by the customer. The commission rate varies depending on the type of insurance policy and the insurance company and ranges from 5% to 20% of the premium paid.
Some insurance agents may also charge fees for their services, such as a fee for reviewing a customer’s insurance needs and recommending a policy. This fee is usually a one-time fee and is separate from any commission the agent may receive from the insurance company.
Finally, as opposed to brokers who act as intermediaries between the client (insurance buyer) and insurance companies, insurance agents represent an insurance carrier and are paid by it. And while this means that customers do not have to pay anything extra for the agent’s services, it’s important to note that agents may be biased toward the company they work for or the carrier that pays them the highest commission.
Do Insurance Agents Get Commission If They’re Employed by an Agency?
No, if the insurance agent is employed at an agency, they are not paid directly. Instead, the agency pays them a monthly or weekly wage. When a client makes a premium payment, the agency is paid a commission from the insurance carrier they represent.
Insurance agencies typically earn money from commissions which range from 8% to 16% of the insurance payment. This means that if the agent sells an insurance policy worth $1,000, the agency will receive between $80 to $160 as a one-time compensation for the sale. If the client decides to renew the policy, the agency will again earn a commission based on the client’s renewal premium.
Agents may also receive bonuses from the agency they’re employed with upon reaching a certain milestone in sales or performance goals. These bonuses could range from free trips to monetary rewards.
Do Insurance Agents Get Paid Hourly?
It’s possible for insurance agents to be paid hourly, but typically it’s a combination of hourly pay, commission, and bonuses. According to data, insurance agents in the US are paid between $24 and $29. The average hourly wage of an insurance agent is $26.
And while it’s true that some insurance agents are paid a salary or an hourly rate for the work they do, this type of compensation is more common for agents who work for an insurance company or agency as employees.
The majority of insurance agents are paid on a commission basis, which means they earn a percentage of the premiums their clients pay. In this case, their pay is not based on hourly work but rather on the number of policies they sell and the value of those policies.
How Do Independent Insurance Agents Get Paid?
Independent insurance agents get paid solely on a commission basis. They typically represent multiple insurance companies, and unlike captive agents who receive a salary or hourly wage from the insurance companies they work with, independent agents operate their own businesses. As such, their income depends on the number of policies they sell and the premiums associated with them.
Similar to insurance agencies, independent insurance agents may be paid a commission on either a residual or upfront basis. This largely depends on the type of insurance they offer and the agreement they have with the insurance carrier they work with.
- Residual commissions are recurring payments that an agent receives for as long as the policy remains in effect and is usually a lower percentage of the total premium paid.
- Upfront commissions are paid when the policy is initially sold and may be up to 20% of the premium, depending on the type of insurance sold.
Some independent insurance agents may charge additional fees to their clients, such as policy processing or administrative fees. These charges are typically disclosed upfront and should be agreed upon by both the agent and the client before the policy is purchased.
To become an independent agent, you need to obtain a license from the state and prove that you have sold policies, i.e. that you have the experience to continue selling independently. You will then need to apply to different insurance companies for appointments.
Once you’re appointed with a carrier, you will be able to act on its behalf and sell policies directly. What this means is you may gain up to 100% of your commissions though most companies have different criteria, and most require a minimum volume so you can actually begin earning.
How Do Life Insurance Agents Get Paid?
Life insurance agents get paid through a one-time commission on the policies they sell. Depending on the insurance company, a life insurance agent may receive from 60% to 80% of the premium paid by the policyholder in the first year. In the following years, commissions can account for 5% to 10% of all premiums paid over the duration of the policy.
In addition, life insurance agents may also receive bonuses or other incentives based on their sales performance. Some agents may charge fees for services such as financial planning or estate planning.
According to data, in 2021, US life insurance companies paid out a massive $51 billion of their earnings in commissions on life insurance policies. Given this data, it should come as no surprise that the average wage of life insurance agents in the US is $48,376 a year, or approximately the same as the wages paid to firefighters (minus the life-threatening aspect of the job).
Do Insurance Agents Lose Money on Claims?
No, insurance agents do not lose any money when a claim is filed. Instead, the insurance company that the agent represents is the one that pays out claims to policyholders.
Claims can actually be very beneficial for the agent as they create more trust between the customer and the agent. If a customer files a successful claim, they will often become loyal to the company and continue to purchase policies from their agent in the future.
How Much Do Insurance Agents Make?
Insurance agents make between $25,761 and $121,252 a year, depending on the type of insurance they sell and their experience in the industry. Agents who have between 1 and 2 years of experience make $53,542 a year, while those with more than 10 years of experience make $69,458 a year.
According to reports, the national average salary of insurance agents in the US is $55,889 per year. So even though insurance agents do not make as much money as lawyers do, they still have a decent-paying profession and one that comes with flexible working hours (especially for independent agents).
Insurance agents’ earnings largely depend on the experience and the type of insurance an agent sells. Agents who specialize in life or health insurance tend to make much more than those who focus on auto or property policies. Additionally, agents who are able to build a large customer base are often able to make more money than those who only have a few customers.