How much of a commission do insurance agents receive for selling life insurance and annuities?
The commission amounts vary from company to company, but insurance agents generally receive up to 55% of your first-year premium in commission for selling cash-value life insurance policies. After that, agents usually receive 3% to 5% in renewal commissions for the next five to ten years. On a policy with a $10,000 annual premium, for example, that's $5,500 for the first year then $300 to $500 per year for as long as a decade.
For term insurance, agents typically receive 35% of the premium.
Some agents, however, can lower their commissions to about 20% of the first year's premium. This concept is called "dialing down" and is only available through a handful of companies in certain circumstances. For example, an agent may offer it if he is competing against another company to get your business, especially if it's for a large policy. Don't expect this to be automatically offered to you, but it never hurts to ask.
A few no-load companies -- like Ameritas, TIAA-CREF and USAA -- offer life insurance policies with no commissions, often sold from fee-only financial advisers or directly from the company. They usually provide higher cash values in the early years, but aren't always less expensive over the long run because their marketing expenses, insurance costs and other fees may be higher. You need to compare all of those charges when looking at a policy -- not just the agent's commission.
Keep in mind that most policies purchased through the Web also pay an agent a commission -- just like they would to an agent you meet with in person.
Commissions for selling annuities also can vary a lot, but agents frequently get 7% or more of the amount you invest in an annuity as their commission. That's at least $7,000 on a $100,000 investment. Some companies give much higher commissions -- I've seen as much as 15% -- and others don't offer any commission at all.
For a clue to the agent's commission, look at the surrender charge. No-load annuities usually have no surrender charge; the annuity with the 15% commission had a 15-year surrender charge. Most annuities have a surrender period of seven years or less, with the surrender charge decreasing by one percentage point per year.
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