First Year Commission

What Does First Year Commission Mean?

A first-year commission is the fee an insurance company pays to an agent for selling a new policy. This payment is calculated as a percentage of the premiums the policyholder pays during the first year of the policy. This kind of commission structure shows up most often in life insurance, where the first-year cut is one of several factors that affect what a policyholder pays in premiums.

Insuranceopedia Explains First Year Commission

First-year commissions are an alternative to renewal commissions, which are payments made after the initial commission. Renewal commissions are paid in the second and subsequent years of the policy.

The amounts paid out for first-year commissions help an insurance company assess the volume of business an agent generates, while renewal commissions indicate how well the agent retains clients over time. Because each insurer sets its own commission schedule, the first-year and renewal percentages an agent earns can differ noticeably from one life insurance company to the next.