Life Insurance Agent Commissions and How to Protect Them

Financing arrangements are an additional compensation method and can take the form of loan advances by the life insurance companies to the agents in anticipation of future commissions but must be paid back through future commissions. These are meant to subsidize the amounts of money that an agent makes from commissions while the new agents can build their books of business to a sustainable level of income.

These financing arrangements are a bridge to provide new agents with a stable monthly income until they earn enough through renewal commissions on a regular basis. Such financing arrangements often put the agents under stress because they are either required to pay back the loans or they are required to perform a high amount of certain business related activities such as making cold calls, setting appointments, or attending training sessions and meetings. A voluminous validation schedule outlines all the requirements for the agents to receive financing and to maintain employment with these companies.

There are four additional miscellaneous ways in which agents are compensated.

First, bonuses may be paid to the agents who reach certain sales goals or maintain employment with the company for a certain number of years. These bonus thresholds are outlined in the bonus compensation schedules.

Second, employee benefits that the agent receives are either paid for or provided at a reduced rate. These can include profit-sharing plans, individual life and health insurance coverages, and retirement plans.

Third, expense allowances are available through some companies that pay for sales expenses for their agents such as for new computer equipment, advertising, or office space.

Fourth, support services such as administrative staff, secretaries, national service lines for clients, and access to office equipment.

While agents are being paid to sell life insurance products, they are not compensated exorbitantly, when 95% of agents quit within the first five years. Most agents that survive —many, if not all — earn enough in renewals to provide for a middle or upper middle-class income lifestyle. Each of the top 10 companies has a small handful of agents who earn more than $1 million dollars each, due in part to their ability to write large group corporate policies or work with extremely high-net-worth individuals.

In some cases, for example, an insurer might assure sales agents that they own their own books of business and the associated future renewal commissions, and then reneg and take the books of business in-house.

Whether the agents have a legal claim may depend on the nature of the legal agreements involved.

As this example points out, it is possible for transferring sales agents to create an understanding with the new company that they remain in charge of their clients and own their own books of business.

When less than 5% of sales agents survive after five years in the life insurance industry, these renewal commissions become an important part of their sustainable income.

Generally, independent agents own their own books of business outright.

For captive agents, the ownership of the renewal commissions does not always belong to the new company they transferred to. The authors recommend life insurance agents to contact agent experts for an economic evaluation to determine if the renewal commissions do belong to the agent after changing companies or not.

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Bernard F. Pettingill Jr. is the president of Pettingill Analytics, a forensic consulting firm in Palm Beach Gardens, Florida. He has been a professor of economics at the Florida Institute of Technology and at Palm Beach Atlantic University. He has also been an associate professor at Louisiana State University Medical School, in New Orleans. Federico R. Tewes is a health and life services analyst at Pettingill Analytics.