How do insurance brokers and agents make money?
Insurance brokers and agents make money through commissions on policies sold. Insurance agent and broker commissions can range from 8-100% per policy, depending on the insurance type. Insurance agents make money solely from commissions, while in some cases, insurance brokers make money from broker fees as well.
Free Auto Insurance Comparison
Compare Quotes From Top Companies and Save
Secured with SHA-256 Encryption
Tim Bain
Licensed Insurance Agent
Tim Bain is a licensed life insurance agent with 23 years of experience helping people protect their families and businesses with term life insurance. His insurance expertise has been featured in several publications, including Investopedia and eFinancial. He also does digital marking and analysis for KPS/3, a communications and marking firm located in Nevada.
Licensed Insurance Agent
UPDATED: Mar 4, 2024
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We are not affiliated with any one insurance provider and cannot guarantee quotes from any single provider.
Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different insurance companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about insurance. Our goal is to be an objective, third-party resource for everything insurance related. We update our site regularly, and all content is reviewed by insurance experts.
UPDATED: Mar 4, 2024
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We are not affiliated with any one insurance provider and cannot guarantee quotes from any single provider.
Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different insurance companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
On This Page
Insurance Agents and Insurance Brokers Summary
Insurance Agents and Insurance Brokers Facts | From the Experts... |
---|---|
An insurance agent sells policies while representing an insurance company or companies | NAIC |
An insurance broker sells policies while representing the customer | NAIC |
Average annual salary for insurance agents is $50,940/yr | BLS |
You know you have to purchase insurance coverage for a variety of things in life, including home and auto protection, sometimes with the aid of an insurance agent or broker. They can help guide you to the best insurance companies and compare rates.
So how do insurance brokers and agents make money? Knowing the answer to this question can help you better understand how the insurance industry works, which in turn can help guide you to buying insurance effectively.
Read through this article to learn the basics of the insurance broker commission structure, the differences between brokers and agents, and more.
Before we get started learning how insurance agents and brokers make money, why not use your ZIP code to get a free quote on car insurance? That way, you’ll know how online insurance quotes compare to those from an insurance agent or broker.
Insurance Agents and Brokers and How They Earn Money
The insurance industry is confusing, and it can be difficult to navigate. You’re probably wondering:
- Do insurance agents or brokers have your best interests at heart?
- How do insurance brokers and agents make their money?
- What is the difference between insurance agents and brokers? Is there a difference?
- How much do insurance brokers make?
- How do insurance brokers and agents make a commission?
Keep reading to learn the answers to these and other questions about the insurance business.
Are you looking for free insurance quotes?
Your one-stop online insurance guide. Get free quotes now!
Secured with SHA-256 Encryption
What is the difference between insurance agents and insurance brokers?
When considering working with an insurance agent vs. insurance broker, you may be wondering what the difference is. They both sell insurance, but at a high level, the primary difference is that they represent different entities. According to the National Association of Insurance Commissioners (NAIC), an insurance broker is:
“[A]n individual who received commissions from the sale and service of insurance policies. These individuals work on behalf of the customer and are not restricted to selling policies for a specific company but commissions are paid by the company with which the sale was made.”
By contrast, according to the NAIC, an insurance agent is, “an individual who sells, services, or negotiates insurance policies either on behalf of a company or independently.”
Ultimately, this means that an insurance broker is supposed to be able to provide you with unbiased expertise and recommendations on the best insurance company and policy for your unique needs and situation.
Insurance agents can also make recommendations on the best policy for your needs, but they do so from the perspective of the insurance companies they represent.
States typically have a number of insurance regulations in place to keep you, the customer, safe. For example, in New York (as in most states) insurance agents and brokers must be properly licensed in order to use those job titles and sell you insurance. In Nevada, unlike many states, insurance brokers are required to disclose their commission to customers. If you live in either of these states, you can learn more about the best New York car insurance and the best Nevada car insurance before making a purchase with an agent.
Read More: What is the difference between a car insurance agent and a car insurance broker?
How do insurance agents make money?
Insurance agents make money by selling insurance policies. In most cases, they make a commission on each sale. We looked at statistics from the U.S. Bureau of Labor Statistics to find out some general information on insurance agents. Take a look.
Insurance Agent Career Statistics
Quick Insurance Agent Facts | Details |
---|---|
2019 Median Pay | $50,940/yr |
Number of jobs, 2018 | 475,900 |
Job growth projection | 10% over the next 10 years |
The average commission for an auto insurance agent is typically somewhere between 8-15 percent for the first year, though 15 percent is not typical. For renewals, most auto insurance agents will make between a two and five percent commission, but in limited circumstances, this commission could be as high as 15 percent. This includes independent insurance agent commission rates.
What is the difference between a captive and independent car insurance agent? It is important to note that there are two kinds of insurance agents:
- Captive agents represent a specific, single insurance company.
- Independent agents work for multiple insurance companies.
Read more: how do life insurance companies make money?
In this table, we’ve listed the average commission ranges for various types of insurance agents.
Insurance Agent Commission Rates per Policy Type
Insurance Agent Specialty | First Year Policy Sale Commission | Policy Renewal Commission |
---|---|---|
Home Insurance Agents | 8%-15% | 2%-15% (mostly 2%-5% range) |
Car Insurance Agents | 8%-15% | 2%-15% (mostly 2%-5% range) |
Life Insurance Agents | 40%-100% | 1%-2% (for years 2 and 3, but nothing after) |
As you can see, home and auto insurance have similar commission rates, while life insurance companies’ commission rates are considerably higher. So how do insurance agents get paid? They are paid commissions from the insurance company.
Your one-stop online insurance guide. Get free quotes now! Secured with SHA-256 Encryption
How do insurance brokers make money?
Similar to insurance agents, insurance brokers make money by getting commissions from selling insurance policies. The rates for commissions are about the same for brokers as they are for agents. However, they can also get additional pay when they choose to charge a broker fee.
How much can you make as an insurance broker? It depends on the level of experience and the number of commissions a broker sells, but an average annual salary is typically between $50,000 and $100,000 per year.
Are you looking for free insurance quotes?
Your one-stop online insurance guide. Get free quotes now!
Secured with SHA-256 Encryption
What type of insurance agent makes the most money?
Life insurance agents typically have the greatest earning potential because of the size of both the policies and commissions. Recall from our earlier discussion about average commissions that a life insurance agent typically earns between 40 and 100 percent commission for each policy sale.
However, each of the different insurance types offers the opportunity for high earnings.
How do insurance brokers and agents make so much money? Not all of them do. Those that are successful can make a lot of money, but most brokers and agents make an average living.
How much do insurance brokers and agents make a year? Remember, earlier we noted that both insurance agents and brokers average between $50,000 and $100,000 a year in earnings.
How do insurance brokers and agents make residual income?
What does residual income mean? According to Legal Dictionary, “residual income is income that a person continues to make after the work [they] have put into a project has been completed.”
Residual income for insurance is the additional, small commission agents and brokers receive for each year a policy is renewed. So the more policies an agent or broker sells, the more residual income they receive.
Case Studies: Illustrating How Insurance Brokers and Agents Make Money
Case Study 1: The Auto Insurance Agent
John is an auto insurance agent working for a reputable insurance company. He has been in the industry for five years and has built a strong client base. Recently, he sold a comprehensive auto insurance policy to a new customer, Sarah.
The policy’s premium amounted to $1,200, and John earned a commission of 12% on the sale, which equated to $144. Additionally, John will receive a 4% commission on the policy’s renewal each year, providing him with residual income.
Case Study 2: The Home Insurance Broker
Lisa is an independent home insurance broker who has been in the business for ten years. She has established herself as an expert in the industry and has a wide network of insurance providers to choose from. Lisa recently helped a client, Mike, find the perfect home insurance policy for his new house.
The policy’s annual premium was $2,500, and Lisa earned a 15% commission of $375 on the sale. In addition to the commission, Lisa charged Mike a broker fee of $150 for her expert services.
Case Study 3: The Life Insurance Agent
Emily is a life insurance agent specializing in helping clients plan for their financial future. She recently met with a couple, Mark and Susan, who wanted to secure their family’s financial well-being. Emily recommended a whole life insurance policy with an annual premium of $5,000.
As a life insurance agent, Emily earned a commission of 50% on the sale, amounting to $2,500. Since whole life insurance policies provide long-term coverage, Emily will continue to earn residual income through annual renewal commissions.
Case Study 4: The Commercial Insurance Broker
David is a commercial insurance broker with expertise in serving small businesses. He recently assisted a local restaurant owner, Lisa, in obtaining comprehensive coverage for her establishment.
The annual premium for the commercial insurance policy was $10,000, and David earned a 10% commission of $1,000 on the sale. Additionally, David charged Lisa a broker fee of $500 for his extensive knowledge and personalized service.
Case Study 5: The Specialized Insurance Agent
Sarah is an insurance agent who specializes in niche markets. She focuses on providing insurance solutions for classic car enthusiasts. Recently, she helped a collector, Tom, find the right insurance coverage for his valuable classic car collection.
The total annual premium for the policy was $20,000, and Sarah earned a 10% commission of $2,000 on the sale. Due to the specialized nature of the insurance, Sarah’s expertise and knowledge in this market segment were crucial to securing the policy.
Are you looking for free insurance quotes?
Your one-stop online insurance guide. Get free quotes now!
Secured with SHA-256 Encryption
How Insurance Brokers and Agents Make Money: The Bottom Line
Insurance agents and brokers have different roles. Insurance agents sell insurance policies while representing insurance companies; in contrast, insurance brokers sell insurance policies while representing the customer. We’ve summarized the main points of the article below:
- How do insurance brokers and agents make their income? By selling insurance policies; they make a commission for each policy that is sold or renewed.
- How much do insurance brokers and agents make per policy? It depends on the insurance type; for example, car and home insurance agents and brokers typically make between eight and 15 percent, while life insurance brokers and agents typically make between 40 and 100 percent commission per policy.
- How much do insurance brokers and agents make per year? On average, brokers and agents make between $50,000 and $100,000 per year.
When choosing between an insurance broker vs. agent to purchase your next policy, it helps to do some research in advance, so make sure to look through our insurance reviews.
Most states don’t require insurance agents or brokers to tell you how much they make on commission, but you can still ask them. If they refuse to tell you, it may be worth considering finding a different insurance broker or agent.
Now that you know how insurance brokers and agents make money, take a moment to use your ZIP code to get a free quote on auto insurance to find out if buying online is cheaper than going through an agent or broker.
Frequently Asked Questions
How do insurance brokers and agents make money?
Insurance brokers and agents earn money through commissions and fees for the insurance policies they sell or services they provide.
What are commissions?
Commissions are a common form of compensation for insurance brokers and agents. They receive a percentage of the premium paid by the policyholder for each insurance policy sold. The commission amount can vary depending on the type and size of the policy.
Do brokers and agents receive commissions from all types of insurance policies?
Generally, brokers and agents receive commissions for most types of insurance policies, including auto, home, health, and commercial insurance. However, some policies, such as fee-based or fee-only policies, may involve different compensation structures.
How are commissions determined?
Commissions are usually based on a percentage of the premium amount paid by the policyholder. The specific commission rate may vary depending on the insurance company, the type of policy, and any agreements or contracts between the broker/agent and the insurance company.
Are commissions the only way insurance brokers and agents make money?
No, in addition to commissions, insurance brokers and agents may also earn money through other sources, such as fees for policy renewals, policy endorsements, or providing specialized services like risk assessments or claims assistance. Some brokers or agents may also receive bonuses or incentives based on their performance or the volume of business they generate.
Can brokers and agents receive compensation from multiple insurance companies?
Yes, insurance brokers and agents can work with multiple insurance companies and offer policies from different providers. This allows them to provide a broader range of options to their clients and earn commissions from multiple sources.
Do insurance brokers and agents charge fees to their clients?
Some insurance brokers and agents may charge fees for certain services they provide, such as policy reviews, risk assessments, or customized insurance solutions. These fees are typically disclosed upfront and agreed upon with the client.
How are insurance brokers and agents regulated in terms of compensation?
The regulation of insurance brokers and agents varies by jurisdiction. In many countries, there are regulations in place to ensure transparency and fair practices in the insurance industry. These regulations may include guidelines on disclosure of commissions and fees to clients.
Are you looking for free insurance quotes?
Your one-stop online insurance guide. Get free quotes now!
Secured with SHA-256 Encryption
Tim Bain
Licensed Insurance Agent
Tim Bain is a licensed life insurance agent with 23 years of experience helping people protect their families and businesses with term life insurance. His insurance expertise has been featured in several publications, including Investopedia and eFinancial. He also does digital marking and analysis for KPS/3, a communications and marking firm located in Nevada.
Licensed Insurance Agent
Editorial Guidelines: We are a free online resource for anyone interested in learning more about insurance. Our goal is to be an objective, third-party resource for everything insurance related. We update our site regularly, and all content is reviewed by insurance experts.