How much commission does an insurance agent make?

Q:

I just bought an insurance policy form an agent. How much commission did they collect from it?

A:

People working in the insurance industry get compensated in a variety of ways: salaries, commissions, bonuses, special incentive payments, and so on. Since you're asking about insurance agent commissions, we'll just focus on the distribution (sales) side of the equation (to find out more about these jobs, see Insurance Industry Careers: What They Are and How to Get Them).

Insurance is distributed in a number of ways. You can purchase insurance directly from the insurance company in what's called a direct write. Or you can purchase it through a brokerage office that represents multiple insurance companies and may employ commission-based salespeople known as producers, agents, or brokers (this is called the brokerage or agency system).

Direct writers are probably paid by a salary, but brokerages are compensated by the insurance companies they represent in the form of commissions, special bonuses for hitting targets, and other forms of incentive-based compensation. The compensation structure is laid out in something called an agency agreement that a brokerage signs with the insurance company. This agreement also authorizes the brokerage to sell the insurance company's products (think of it like a distribution agreement).

The typical commission a brokerage earns from a sale is negotiated on a case-by-case basis with each insurance company they work with, so the rate varies. But it's usually between 10 to 20% of the premium paid, with an average of 15%. A brokerage can negotiate a higher commission with the insurance company if they take on more responsibilities, such as underwriting and paperwork. There are also special brokerages called MGAs (Managing General Agents) who do some of the underwriting work and so are able to earn around 25%.

Now, if a brokerage employs a commission-based salesperson, that salesperson is compensated according to the agreement they have with their brokerage. This agreement is also negotiated on a case-by-case basis, so it is hard to say how much they make but they typically split the commissions earned 50-50. In other words, if the brokerage is earning 20% of the premium in commissions, the salesperson (the insurance agent) earns 50% of that: 10% of the premium in commissions.

All of these agreements are negotiated on a case-by-case basis and renegotiated regularly, so there's no way for me to know exactly how much the agent you purchased insurance from is making. But what I've mentioned above are some general industry guidelines. So, even though you have no way of knowing whether your agent earned special bonuses, earns tiered commissions, or anything of that sort, you can still have a (very) rough idea of how much your agent earned for selling you the policy (find out what is the top paying insurance job).

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Written by Jacques Wong
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Jacques grew up around the insurance industry and began actively participating in 2013. Since then, he has gotten a Level 2 license, won an Insurance Council of BC award in 2015 for academic excellence in the insurance licensing courses and educates insurance professionals through PNC Learning.   Full Bio