Some would say that insurance salespeople are as tenacious and pushy as car salesmen. Why is it? The answer is simple--their incomes are based solely on whether or not you buy a policy from them. Like many industries where the workers' pay is based on commissions, life insurance salespeople work hard to get a sale. Their commission checks are worth all the cold-calling and lead-following.
How Rates Are Determined
Different companies offer different commission plans. The rate of the commission depends first on the plan being offered by the company you are working for or looking to work for. Two other factor that count when compiling commission rates is the type of policy being bought and the length of time of the policy.
Term Life Policies
There are two different basic types of life insurance policies: term life insurance and cash-value life insurance. Both garnish a different commission rate for the agents selling them. Term life insurance offers valuable life insurance for consumers on a budget. It has low premiums and is bought for a specific time period, or term. However, term life insurance doesn't build in cash value, so it doesn't provide the agent with a very large commission rate. The average commission rate for term life policies is somewhere between 30% and 50%. Some companies can go as high as 70% or as low as 10%, but this isn't the norm.
Cash-Value Policies
Cash-value, or whole, life insurance policies have a cash value associated with them. They don't have an expiration date like term life insurance and cover you for the entire length of your life. During the time that the policy is held and the premiums are paid, it builds in cash value that is tax-deferred while it is untouched. Because of the benefits that come with cash-value life insurance, the premiums are much higher and bring a higher commission rate to the agent than term life policies. This is the major reason why agents prefer to sell cash-value policies over term life policies. The average commission rate for cash-value policies is between 90% and 95%.
Rates
Depending on the company, the commission rate can be one flat rate or it can change over time. Some companies offer their agents a higher rate for the first year of the policy and a slightly lower rate for sequential years following. For example, one company gives their agents a 20% commission rate for the first year and 5% for the remaining years of the policy.
