If you're thinking of a career as an insurance agent, you are probably asking yourself, how much do insurance agents make? According to the U.S. Bureau of Labor Statistics, the average insurance agent's total pay (salary, commission and bonuses) in 2013 was $48,210 with the bottom 10% earning an average of $26,120 and the top 10% earning $116,940. However, this can depend on a variety of factors and you'll first need to decide which type of agent you'd like to be.
There are two types of insurance agents in the United States: Captive and Independent. Captive agents work for a specific insurance company, like State Farm. Independent agents work, as their name implies, on their own. There are differences between the way these agents work, and differences in the way they're paid.
Auto & Home Insurance Commissions
Insurance agents who sell auto and home insurance typically get paid based on the written premium of the policy. Typically, the percentage earned as commission ranges between 5-20%. When a policy gets renewed, the agent earns commission again, although sometimes at a lower rate. Agents that put in the effort to build a solid book of business can draw a considerable yearly salary simply from renewals and consistently adding to your book of business can lead to exponential income growth.
Example: A $1,000 auto insurance policy with a 10% commission provides the agent with $100.
Life & Health Insurance Commissions
Agents who sell life and health insurance policies are often on a different commission structure than P&C agents. In most cases, agents will earn high up front commissions with much lower rates on renewals. Commissions for life and health insurance brokers tend to be between 40-100% of the first year premium, then 1-2% for renewals, and after 3 years often go away entirely.
Example: A whole life insurance policy with premiums of $5,000 and commission of 70% provides the agent with $3,500.
Getting Paid as a Captive vs Independent Agent
Being a Captive Agent
The number one concern for all agents is attracting clients. Insurance companies have marketing budgets they spend generating interest in their brand and generating leads for their captive agents. This benefits new agents who otherwise may have a small sphere of influence from which to attract clients. Often, simply by staying close to the phone, a new captive agent can acquire business from leads generated by the company's marketing efforts. Many large companies employing captive agents provide benefits and provide access to the reinsurance market. Captive agents also benefit from having a desk in an office, a receptionist, and a full suite of office equipment. Being in an office with other agents can also be a benefit since there is a wealth of experience on which to draw. These factors add a sense of credibility to an agent. A downside is that, since a captive agent works exclusively for one insurance company, that agent can only sell the products that company offers and doesn't have the ability to refer customers elsewhere when they can't sell them a policy. The parent company may also push certain types of policies for the agent to sell or discontinue certain types of coverage.
How Captive Agents Get Paid
Insurance agents make their living off of commissions, but may also get paid a salary to help the agent as they build their book of business. Captive agents generally receive an initial commission of somewhere between 5% and 10% of the value of home and auto policies that they sell. Then they receive recurring commissions each time their client renews the policy. Renewal commissions for captive insurance agents tend to drop from their initial commission. In addition to commissions, captive agents receive regular opportunities for performance bonuses. Sometimes bonuses can make up 20% or more of a captive agent's income.
Being an Independent Agent
Many independent agents work from home or from a small office they pay for themselves. They do not have the same support from a larger carrier like captive agents, but also don't have the same red tape. Instead of sitting by the phone in a large office waiting for leads to come in, independent agents thrive on getting out into the community, meeting clients at cafes or at their places of business. This replaces the big marketing budget of a major company. Interacting with the public expands their sphere of influence. As independent entrepreneurs, they can offer a more personal level of service to clients who may shy away from corporate brands. Also, instead of only selling one company's products, independent brokers can shop around to find their clients the best product for the best price. This can help the agent gain a client's trust. The downside is that they take on more financial burden with getting started, are almost fully commission based and it can be difficult to get appointed. Specifically for new agents, attempting to become an independent agent can become very challenging to get appointed by carriers without an existing book of business and solid business plan.
How Independent Agents Get Paid
Independent agents are paid primarily on commission. The more clients they serve, the more money they make. And as those clients renew each year, independent agents continue to make commissions of those policies. In general, however, independent agents receive larger commissions than captive agents. A captive agent at Allstate might make 10% off of an initial sale of a homeowner's policy. An independent agent who sells that same Allstate policy might make 15%. This may not sound like a big difference, but if you write $500,000 in premiums in a year, it's a difference of $25,000 to your salary. Going forward, independent agents' renewal commission percentage normally stays the same. A captive agent's commission percentage structure might be 10-8-6 for the first 3 years of a policy which further decreases overall compensation. An independent agent's commission percentage structure might be 15-15-15. Independent agents typically earn the same as non-salaried captive agents off of health and life insurance policies, and independent agents have no opportunities for performance-based bonuses.
Example: A $1,000 auto insurance policy for an independent agent, renewed for 3 years at 15% commission provides the agent with a total of $450 (Year 1: $150, Year 2: $150, Year 3: $150). A $1,000 auto insurance policy for a captive agent, renewed for 3 years at decreasing yearly commission (10-8-6) provides the agent with a total of $240 (Year 1: $100, Year 2: $80, Year 3: $60).
What Role Does Experience Play?
Time on the job is a big factor in determining income potential for both captive and independent agents since commissions accumulative over time. If an agent continues to generate the same number of new clients each year, and the agent's existing clients renew their coverage each year, that agent can increase his income exponentially over time. Since independent agents' renewal commissions tend not to drop year after year, they have an advantage in the long run over captive agents, whose renewal commissions decrease. Entry-level agents have few clients, and thus earn the lowest income. Experienced agents have likely accumulated a large number of long-term clients, and as such make a comparatively larger income.
Example: $500,000 in premiums written in year 1 with 15% commission nets $75,000 in commissions. If 80% of that premium is renewed in the following year, a 15% commission rate would provide you with $60,000. Selling another $500,000 in written premiums that year would boost your salary by another $75,000 for a total of $135,000.
Another way experience plays a role in the income of an insurance agent has to do with people skills. Regardless of whether an agent is captive or independent, success is all about relationship building. The more experience an agent has, the better the agent can anticipate and fulfill the needs of a client. If a client feels taken care of by an agent, that client will likely continue to renew. Another advantage of independent agents is that they can change their clients' policies to new companies if they find a better deal. Also, if a captive agent changes companies or decides suddenly to go independent, he will likely lose his book of business and cease to get his renewal commissions, therefore having to start from scratch.
How Does location Affect an Agent's Income?
The cost of living, crime rate, health statistics and accident rates in a city can all affect insurance rates, causing fluctuations in the size of premiums and therefore the size of commissions. Location can also affect how many potential customers are available compared to how many agents are working the market. When deciding where to work, an agent should consider the cost of living, the likely value of premiums, an the likely amount of competition and pick the market that best suits his desired lifestyle.