How Do Insurance Agents Make Money?

You know you have to pay your insurance premiums on time, but you might not be sure of how insurance agents make money. While some agents receive a commission, not all do. Further, a commission isn't the only way insurance agents make money. If you've ever asked yourself, "How are insurance agents paid?" we're here to help answer that question for you with this in-depth guide.

Also, if you're in need of any kind of coverage, a local independent insurance agent can help you get it. An independent insurance agent can help you find homeowners insurance, auto insurance, business insurance, health insurance, or whatever type of policy you're looking for today. But first, here's a guide to how insurance agents make money.

How Do Insurance Agents Get Paid?

You don't see an invoice for your insurance agent's services, so you might be wondering how they get compensated. You might have asked questions such as, "How do independent insurance agents get paid?" or, "How do independent insurance agents make money?"

If you're contemplating how independent insurance agents are paid, it starts by understanding that you, as the consumer, aren't typically responsible for paying them. An independent insurance agent gets compensated by the insurance carrier. The insurance carrier pays the agent a percentage of the profit referred to as a commission.

So, do independent insurance agents charge a fee? You, as the consumer, are not responsible for paying your independent insurance agent unless otherwise stated. Some agency policies are fee-based instead of commission-based, and in this case, they would disclose any fees upfront. So, if you work with an independent insurance agent, you'll never get hit with hidden fees or charges late in the process.

Captive agents are often employed full-time by the insurance company or companies they work for and earn an annual salary as part of their income. These agents may receive additional earnings in the form of commissions when they sell an insurance policy.

An agent who receives both salary and commission is motivated to be an excellent salesperson because of the additional earning potential and because their annual revenue will ultimately depend on their sales performance. Further, some carriers in the insurance industry implement profit-sharing programs with partnering agencies, which may reward agents with a bonus once certain revenue targets have been achieved.

Are My Insurance Rates Affected If I Have an Insurance Agent?

Having an insurance agent's expertise can help you find the type of coverage you're searching for. However, you might be concerned that using an agent could increase your insurance rates. Fortunately, if a client uses an independent insurance agent as an intermediary, their premiums will not be impacted.

The insurance company pays the agent out of their profit for selling insurance products and does not increase the policyholder's premiums to pay the agent. Because independent insurance carriers don't spend a lot of money on advertising, they can pay agents a fraction of what it would cost to market themselves. This saves you time and money versus going to a captive or direct market.

In many cases, an insurance agent or broker earns a percentage of income from the first-year premium of an insurance policy they sell. This agent or broker typically earns ongoing residual income throughout the life of the policy, but their earnings decrease over time. Still, the money paid to the insurance broker or agent comes from the insurance company that underwrites the policy sold, not from the customer.

Who Do Independent Insurance Agents Work For?

When shopping for insurance, you want advice from a trusted advisor who isn't biased. But you may have heard that independent agents may have the incentive to oversell policies or not provide the coverage needed because they work for the insurance companies and not the customer. Fortunately, this is a misunderstanding.

While it's true that a captive insurance agent works for the insurance carrier and does what's in the company's best interest, independent insurance agents are different. An independent insurance agent works on your behalf and is genuinely an unbiased third party. Instead of being contracted with just one insurance company, they work with several insurance carriers and can provide you with the coverage and pricing you need.

How Does Having an Independent Insurance Agent Save Me Time and Money?

Perhaps you've considered working together with an independent insurance agent but aren't sure of how they can be beneficial. An independent insurance agent can save you time and money as you shop for insurance. Since they're independent, these agents are free to shop and compare policies, quotes, and coverage options from a number of different insurance carriers for you.

This helps them find quality coverage from a reputable carrier at the best possible rate. An independent insurance agent saves you both time and money by comparing multiple options for you to find affordable coverage that delivers what you need. This saves you from having to do the comparison shopping yourself.

What Is an Independent Insurance Agent?

There are two most commonly known types of insurance agents: independents and captives. A captive agent works for one insurance company, is employed by that insurance company, and works on behalf of the carrier.

An independent insurance agent works on behalf of the consumer, has dozens of carrier options, and is paid a commission based on each sale. Independent agents are often the top choice for finding you the best coverage at a competitive price.

Does a Business Owner Have to Pay an Insurance Agent?

If you own your business and need to get insurance, you might be concerned an insurance agent would charge you a fee for their services. However, it might be inspiring to hear that the insurance company pays an independent insurance agent rather than the customer or client paying the agent for their help.

More specifically, the independent insurance agent receives a cut of the commissions from each sale. The insurance companies can offer this because they don't spend as much money on marketing as captive or direct markets do.

What Kind of Insurance Agent Gets Paid the Most?

Do captive or independent insurance agents make the most money? The answer doesn't depend so much on what type of insurance agent it is, but rather, what kind of insurance they sell. Life insurance agents actually get paid the most of all insurance agents.

Agents who sell life insurance earn between 30% and 90% commission on the policy's premium they sell. These agents also sometimes receive a "renewal" or "trailing commission" in the following years, which can range from 3% to 10% of the policy's annual premium. In many cases, life insurance agents are thought to receive the best employee benefits for their careers when compared to other types of insurance agents or brokers.

How Profitable Is an Insurance Agent?

According to the Bureau of Labor Statistics, insurance agents make an average of $79,650 for their annual salary. This breaks down to an hourly rate of $37. However, an agent's experience level and performance can greatly impact their income potential.

Veteran insurance agents can make well into the six figures annually, while entry-level agents or brokers can make much less than this average. Commission structures can greatly impact an insurance agent's potential earnings as well. Depending on the insurance company an agent works for and how the carrier structures its commission and other payments, salary and bonuses can vary widely.

Are Independent Insurance Agents Cheaper?

Independent insurance agents can be cheaper to work with than a captive insurance agent or an insurance broker for many reasons. First, independent insurance agents typically don't charge their customers a fee for their services. They are usually paid by the insurance carriers for which they sell policies.

Second, independent insurance agents often end up being cheaper than other agents because they work hard to find the customer the best possible deal on coverage. That means the policyholder might end up with much lower premiums than someone who shopped for a policy with the help of a captive agent or a broker.

And finally, since independent agents can save consumers so much time when shopping for insurance, this can allow them to get back to work as quickly as possible and maximize their profits.

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