Are you interested in becoming a life insurance agent? If so, you’re probably wondering, “how much do life insurance agents make.” Is it the money printing business that people perceive it to be?
We all know that the life insurance industry is extremely competitive. Can a newbie earn enough to make a full-time career out of it?
Before we delve deep into this topic, let’s understand some critical aspects that affect the income of insurance agents.
The Compensation Model for Life Insurance
Life insurance agents can either work on a commission basis or a salary basis (if they are contract employees).
Captive insurance agents work for one insurance company who contracts them as an employee and pays them primarily through salary and a smaller commission structure.
Independent insurance agents work for multiple insurance companies who only pay them commissions and no salaries, which results in a higher commission structure.
There is more risk and reward in the independent insurance agency model but most insurance agents get started as a captive insurance agent and rely on the salary.
Types of Life Insurance
Most people buy life insurance to protect their loved ones or their estate from financial hardship in the event of their death. Whole life insurance is a type of permanent insurance that is guaranteed never to lapse or become void.
Term Life Insurance, on the other hand, only lasts for a predetermined period of time, such as 10 or 20 years.
Mainly, there are two types of life insurance policies:
- Term Life Insurance — Policies that offer coverage for a short period or limited time, like five to 30 days.
- Whole life insurance — Policies that cover the entire lifetime of the customer. Whole life insurance is a life insurance policy that provides coverage for your whole life. It is called “whole” life insurance because it covers you for your entire life, until the day you die. Regardless of your health or age, your insurance policy’s premiums are guaranteed to never increase.
Some companies provide permanent life insurance, which is a type of life insurance policy that cannot be canceled or non-renewed. Permanent life insurance includes whole life insurance policies and universal life insurance policies.
Permanent life insurance is also sometimes referred to as “cash value life insurance.” Typically, permanent life insurance policies have higher premiums than term life insurance policies, which can also include cash value.
Factors Affecting a Life Insurance Agent’s Income
Many factors decide what income the life insurance agent earns, including:
- The insurance agent’s commission depends on the type of policy he/she sells.
- Generally, long-term policies fetch more commission for the agent, whereas short-term policies do not.
- For a term life insurance policy, agents get a commission somewhere between 40-90% of the first year’s premium.
- Commissions vary between 2-5% during the second to the fourth year of the policy’s lifetime and after that, there is usually a drop in the commission percentage.
- Depending on the compensation agreement between the insurance company and the agent, the amount of commission offered will also differ.
Do Life Insurance Agents Earn Commission or Salary?
Independent agents who sell life insurance usually hold several contracts with multiple companies and compensation agreements that make up their earnings. Regardless of the fact that some of them work on a contract, life insurance policy sales usually give a licensed representative compensation from a commission and sometimes salary if they are contracted employees. Many of the agents who sell life insurance work on contract so commission may be their primary source of income.
Whether or not an agent is paid primarily by salary or commission will depend on whether or not the life insurance agent is a captive agent or an independent agent, which we will cover next.
How Captive & Independent Life Insurance Agents Get Paid
Life insurance agents may work as a captive insurance agent for one company or as an independent agent for many companies.
Independent insurance agents are expected to generate the bulk of their income from commission. Other models of compensation for captive insurance agents typically include higher salaries, and less commission percentage because of their employment arrangement.
The answer to how much a person makes when they sell you a life insurance policy is not straightforward. Independent agents/brokers make more money in commission than they do salary. They also have the potential for more commissions from all of the sales they make throughout their career whereas a full-time employee working as a captive insurance agent works for their salary.
Estimating an Insurance Agent’s Salary
Let’s take an example and see how much commission a hard-working life insurance agent can make in their first year of sales.
Let’s assume that an insurance company pays a 90/5% commission on whole life policies. It means that the selling agent receives a commission equal to 90% of the yearly sum of the first-year premium, and 5% in the subsequent years.
So, if a customer opts for a policy where the premium is $100 per month, it totals a sum of $1,200 a year. As per the above terms, in the first year, the agent will earn a commission of $1,080 (90% of $1,200). Hence the weekly commission in the first year comes to $20 (1080/52 weeks).
If the agent works hard, there really are no limits to how many policies they can sell and the commissions will begin to stack up.
Annual Statistics on Insurance Agents’ Salary
As per the U.S. Bureau of Labor Statistics, in May 2019, the median annual wage for insurance sales agents was $50,940.
The agents in the lowest 10% category earned less than $28,000 and the ones in the highest 10% earned more than $125,500.
This is a large salary range and it is because the statistics are taking into consideration both captive insurance agents and independent insurance agents. These two types of agents get paid very differently as we previously covered in regards to commissions vs salaries.
Additionally, this data is for all insurance agents which include salaries from property and casualty agents and other types of insurance agents in addition to life insurance agents.
Due to the two different compensation models previously above for captive and independent agents who are paid with either a salary + commission or only a commission, this number varies greatly. Because it is a median, it is not showing you the high end of the more established agents, or those who sell higher valued policies and get paid very high commissions.
When looking at this salary data for life insurance agents it is also worth looking at salary data for personal financial advisors to get a better idea of what earnings are like in this profession. The median pay for a Personal Financial Advisor who also sells life insurance is $88,890 per year or $42.73 per hour.
Other Factors Affecting the Income of Life Insurance Agents
Earlier, we discussed the income of the agents purely from the perspective of their earned commission. However, other factors decide how much life insurance agents can make too, like:
Depending on the state(s) that a life insurance agent is licensed in will have an impact on his or her earnings. States with higher net incomes are going to results in higher earnings for agents because the value of the policies they are selling to higher-income clients will result in more commissions.
One of the prerequisites for any life insurance agent is their ability to build a strong and wide client base. If an agent is good enough, their happy customers will readily refer friends and acquaintances. If a high net-worth individual opts for a life insurance policy, it can change the fortunes of the insurance agent overnight!
At the same time, one should keep in mind that rejections are quite common and only those agents having a go-getter attitude can stay in the business.
The Number of Insurance Companies the Agent Works With
Income also depends on whether you are a “captive” agent or an independent agent. Captive agents can only sell one insurance company’s products. However, the insurance company generates leads for captive agents. In addition to the commission, the captive agents usually receive a salary.
In the case of independent insurance agents, they deal with different kinds of policies from multiple insurance companies.
A customer who has opted for the life insurance policy may need a home insurance policy as well. In such cases, the independent agents dealing with multiple insurance companies have greater chances of earning more income than captive agents.
The Nature of the Policies the Agent Sells
As we discussed earlier, the life insurance agents’ commissions vary between 40% to 90% of the first year’s premium based on the nature of the policy. So, one of the crucial factors that determine the agent’s income is the type of policy they sell.
In some cases, insurance agents sell the policies that fetch them more commission. However, the agents should always consider the customers’ requirements before hard-selling any product.
Besides, it’s unethical for agents to sell products that earn them more commission instead of suggesting the ones that fit the customers’ needs.
The Number of Policies the Agent Sells
Naturally, a hard-working agent will sell a huge number of policies when compared to a lazy one. Since the income is highly variable, it depends on how skilled the agent is at following up with existing customers, generating new leads, thinking out of the box, and doing other tasks.
The Agent’s Experience
Finally, how much life insurance agents make depends on their experience. Depending on their number of years in the business, the agent who’s working in the same industry for a long time will be in a much better position to suggest a policy that is apt for the customer’s needs. Such a service truly delights customers and they’re more likely to purchase from such an agent.
Essentially, word-of-mouth publicity plays an integral role in generating leads and getting business in the industry.
Is Selling Life Insurance a Good Career Opportunity?
Selling life insurance can be a tough way to make a living and a difficult one to build a career around. Some career analysts, like the job site, “Monster.com,” report that agents burn out within a year.
However, the life insurance agents that do not burn out and find success absolutely love their careers and are compensated very well.
Life insurance agents face a difficult road as they build their businesses. The pay is usually straight commission unless you are working as a captive agent. Finding qualified customers is notoriously difficult, and the few leads your company gives you are usually contacted by dozens of agents — so you need to establish yourself in the market.
The success of your career in selling life insurance will be determined by how much you put in with your personal brand, how much time you put into your social media, how much time you put into developing your website, and how much time you put into developing your content.
Independent life insurance agents will be compensated in commissions and are required to find customer leads on their own in a competitive market. It’s also extremely important to establish a relationship with a client as quickly as possible. Agents must find their leads on their own, and cold-calling is the best way to do it. There is a huge market for life insurance in the US and a lot of people are selling it.
Selling life insurance can make for a great career due to the high potential for compensation and flexibility in your work environment. Also, life insurance is a product that people need forever and it’s a product where you can get paid to sell over and over again.
How Much is Your Life Insurance Agent Making Off You?
Sometimes the simplest way to find the right personal financial professional and how much they are making off of you is to ask. The National Association of Personal Financial Advisors offers some great questions for consumers to ask when they’re making the decision of who will be their financial planner.
- How are you compensated for your services?
- Do you accept referral fees for my business?
- Will you itemize your commissions earned from the products you sell me?
Asking your life insurance agent these questions will tell you how much your life insurance agent is making off of your business.
We hope this article provides insight into how much life insurance agents make.
As you can see, like most other professions salaries for life insurance agents will vary depending on a number of factors such as experience and location.
Selling life insurance is not a get-rich-quick scheme but rather a long-term career opportunity with a lot of upside potential.
If you are a polished sales professional who enjoys helping people plan for their financial future then working as a life insurance agent might be the perfect career opportunity for you.
If you think that life insurance agent salaries are in a good range for you then perhaps you’d be interested in becoming an insurance agent.
We’re sure you’re ready to step into the insurance industry with a bang!