Understanding Life Insurance Sales Compensation

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How Agents and Brokers are Paid for Selling Policies

By Dr. David Edward Marcinko; MBA, CMP™

By Hope Rachel Hetico; RN, MHA, CMP™

[ME-P Publisher-in-Chief and Managing Editor]dave-and-hope1

The recent AIG, and related insurance debacles, have prompted several of our cost-conscience doctor clients to rethink insurance agent sales commissions and related perks.  We trust this brief review is helpful to all concerned.

Life insurance company agents

Life insurance agents are appointed by the insurer with the authorization to solicit and deliver contracts of insurance. The agent’s power under life insurance is more limited than that of a property and casualty agent because an agent cannot bind a life insurance carrier to an individual risk, as opposed to a property and casualty agent who can bind his or her insurance company.

Agent Commissions

Agents are compensated primarily on a commission basis from the insurance company they represent. Compensation is higher for the first year a policy is in force. Thereafter, the agent may receive compensation for renewal—a percentage of the annual premiums—and much smaller compensation during subsequent years. If the agent achieves a certain level of production, the agent may receive additional bonuses or other types of compensation. Think: Million Dollar Round Table; or Million Dollar Club Producer.

Commission Rates

Commissions for agents typically run 50% to 55% on cash value products and 40% on term products. Agents’ commissions generally are lower than brokers because they are housed by the insurer, and therefore most of the agents’ expenses are reimbursed or paid by the insurance company.

The Fringe Benefits

The agent also receives fringe benefits from the company, such as health insurance, life insurance, disability insurance, a retirement plan, or a cafeteria-type plan. Usually, agents must maintain a specified level of first-year commissions in order to continue employment with the company.


Life Insurance Brokers

A broker represents the client directly and can show illustrations from many different companies because theoretically there is no allegiance to any one particular company.

Dual Agent-Managers

Some brokers who may act both as general agents and agency managers (individuals who oversee an office of insurance representatives) usually earn commissions as stated above and overrides on first-year premiums to as much as 40%. There is a separate scale on renewals from the sales staff. These overrides are in addition to basic commissions earned either through the broker selling a product on his or her own or as manager of the office. In addition, brokers may earn subsidies for their office and production bonuses.



One advantage that life insurance agents have is that some direct writing companies employ only agents to represent them and sell their products. A broker may not have access to sell certain lines of companies that an agent does.

Disclaimer: Both contributors are former licensed insurance agents and financial advisors.


Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com


Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™


9 Responses

  1. On Life Insurance

    The most valuable piece of advice in the post above is in the last sentence – “all of the above are not fiduciaries”. It is important for a physician seeking advice to work with a fee-only advisor. Such an advisor can act as a fiduciary and provide advice which is only in the best interest of the client.

    Let’s consider the example of a typical physician in the middle of his career – a 47 year old internist earning $180,000 per year, with a non-working wife and two elementary school children. There are a couple methods which can be used to calculate the necessary life insurance for such an individual.

    The most precise method is to calculate the current value of all future expenses for this family which need to be provided for by either the physician’s salary or alternatively by his life insurance. Using this method, living expenses as well as future college costs and even the retirement needs for the surviving spouse may be included. While this method is certainly precise, it requires complex calculations as well as innumerable assumptions.

    A simpler method for calculating insurance needs is to calculate the size of a well diversified portfolio needed to provide an income equal to the lost income of the deceased spouse. In this example the income minus taxes and minus retirement savings would equal approximately $130,000 per year. Assuming a 5% withdrawal rate from a well-diversified portfolio, a $2.6M life insurance policy would be needed to replace this income and to adjust the income over time for inflation.

    The most efficient way to provide for this type of insurance is a level term insurance policy. Such a policy can be renewed at the same cost for a given number of years, regardless of the changing health status of the insured. Depending upon the age of the children in the above example, a 15-year period will likely provide for the family through the children’s college years.

    By the time the physician is 62 years old it is likely that enough personal savings and retirement savings have been accumulated in order to provide for the surviving spouse in the event of the demise of the breadwinner in the family. It is important for the practicing physician to seek the advice of a fee-only advisor to help navigate through these insurance questions.

    Brian J. Knabe; MD, CFP®


  2. Life Insurance for Kids?

    Drs. Marcinko, Knabe and Hope

    Should a doctor buy life insurance for their kids? It may sound like a crazy question, but it’s not. Due to a child’s long life expectancy, the premiums are cheap. Underwriting is simplified and expedited. There is always a chance that junior could become uninsurable as an adult. Meanwhile, life insurance is one way safety-minded investors can save for their children.


    But, there are catches; so read the above link on this classic question carefully.



  3. Another Slimy Insurance Company

    Georgia insurance commissioner John W. Oxendine just signed a consent order with California-based insurer Trans World Assurance in which the company agrees to surrender its certificate of authority in Georgia. Oxendine accused the company of targeting military personnel with a deceptive sales program, and violating the state insurance code in multiple ways.


    Ann Miller; RN, MHA


  4. On Residual Disability Insurance for Physicians
    [More important than life insurance?]

    Having Residual Disability (or Partial Disability) provisions in your policy can be the most important decision you (or your insurance consultant) make when you bought (or if you are considering buying) your Individual Disability Insurance policy.

    If you are eligible for Long Term Disability Insurance (Group) coverage from your employer, most probably, the definition of Disability includes a Residual component.

    However; having the coverage and getting paid under that coverage may cause you to be subjected to some creative “refinancing” of your financial information as assessed by your Disability Insurance Company; so beware!




  5. Sales

    A good salesperson is a student for life, always committed to learning.

    Great salespeople are self aware; just when they you think they know it all, they admit that there is always more to learn. They invest time and energy to getting better. They understand that learning from others and their past experiences gives new skills—and an ability to adapt and prepare better to meet their customer’s needs.

    It’s this awareness and dedication that truly sets a superior salesperson apart from any pack.



  6. Not the Military?

    New York Attorney General Andrew Cuomo just subpoenaed five more insurers in a widening probe into whether the industry has defrauded families of deceased members of the military.


    The latest subpoenas were issued to Aetna Inc, American International Group Inc, CNO Financial Group Inc, Lincoln National Corp and Principal Financial Group Inc.



  7. Health Insurance Agent Sales Compensation

    There is a bill pending to exclude health insurance agent commissions from the medical loss ratio [MLR].

    Reps. Mike Rogers (R-Mich.) and John Barrow (D-Ga.) have introduced a bill that could keep agent commissions out of medical-loss ratio calculations. Rogers and Barrow lined up 14 cosponsors for the bill, the Access to Professional Health Insurance Advisors Act of 2011 (H.R. 1206).




  8. Nice post,thanks for sharing the informative post.This will increase the awareness between all the readers.
    critical illness cover

    David Guetta


  9. Zenefits’s Financials

    Did you know that Zenefits is a company that uses HCM applications to cross-sell insurance products.San Francisco-based Zenefits was founded by Parker Conrad and Laks

    Srini as a platform to manage HR issues within an organization along with a marketplace for employee benefits. The company follows a hub-and-spoke model that offers cloud-based HR software for free.

    In return, it gets access to the pool of employees at these organizations to sell insurance products to.



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