How Do Life Insurance Agents Get Paid?

Life insurance companies typically use a broker system to sell their products. Life insurance is almost always a commission-based product, which means that life insurance agents get paid a commission on the sale of life insurance products.

Types

Different life insurance products pay different levels of commission. While permanent life insurance tends to pay higher total commissions than term life insurance, the percentages may or may not be the same depending on the product. Also, commission percentages tend to be lower where life insurance benefits are higher, or greater, to the client. For example, life insurance products that offer the highest cash value potential and accumulation in the early and later years of the product tend to pay the lowest commissions to the agent.

Significance

Commissions have a balancing effect. The larger the commission to the agent, the higher the cost to the client. This means that policy charges may be higher, interest crediting must be lower or cash value accumulation must be slower as commissions to the agent rise.

Warnings

Commissions may pose a conflict of interest when working with clients. If the agent is primarily concerned with commissions, the advice given to the client may not be objective. Agents may be tempted to sell high commission products at the expense of the client.

References

• "Practicing Financial Planning for Professionals (Practitioners' Edition), 10th Edition;" Sid Mittra, Anandi P. Sahu, Robert A Crane; 2007
• "Ernst & Young's Personal Financial Planning Guide, 5th Edition;" Martin Nissenbaum, Barbara J. Raasch, Charles L. Ratner; 2004
• "Life & Health Insurance, License Exam Manual, 6th Edition;" Dearborn Financial; 2004