Insurance agents and brokers are sales people. They have a product that they sell to you and they earn a commission on it. That is how they get paid. 

But did you ever wonder how much they’re getting paid? Auto insurance, life insurance and other type of insurance agents make money usually by how many insurance policies they sell.

If you're wondering how much agents make on policies, you could try asking point blank, but few states require insurance agents to tell you what they're making off a particular policy. 

The best way to get an idea of how much your business is padding your agent’s bottom line, is to go with the facts available to everyone.

How do insurance agents make money

Insurance agents usually make a living off commissions. 

They’re seen as a go-between the consumer and the insurance company. Their job is to help individuals find insurance policies that best suits them.

An insurance agent works for the insurance company. The agent’s job is to connect an individual with a policy from insurance companies.

That's different from an insurance broker. An insurance broker’s role is also to find an insurance policy for the individual. However, a broker isn’t connected to the company. Instead, the broker is meant to work for the individual and find the right insurane policy regardless of insurance companies. 

How much do car insurance agents make?

According to the US Bureau of Labor Statistics, the average yearly salary for an insurance agent is just over $50,000. Its website lists commission as the post common form of compensation.

The same Bureau of Labor Statistics estimate list s bottom 10% of insurance agents earning $25,000 a year, with the upper 10% earning $125,500 per year.

These numbers depend on the type of agent, though.

  • Captive agents work directly for insurance companies.
  • Independent agents can sell insurance from a variety of insurance companies and aren’t tied down to one.

How much do captive agents make?

Typically captive agents earn less in commission. Captive agents don't have to chase down insurance claims as much as independent agents.

They have the benefit of the larger insurance company name and marketing department to send them qualified leads.

An independent agent makes a much higher percentage of commission compared to captive agents. They have to work harder to find their customers, but they can also offer them much more variety in terms of pricing because they can shop around by insurance companies. 

What life insurance, auto insurance and other agents earn off an insurance policy varies.

Auto insurance agents earn a commission when selling the policy and at renewal time. Life insurance doesn't have renewals so a life insurance agent will get higher commissions at the time of the sale than a car insurance agent.

A life insurance agent can make $100,000 per year by selling a couple of life insurance policies per week. Meanwhile, an car insurance agent would need to sell many more policies each week to reach $100,000 per year.

However, remember, that life insurance agents' work is mostly done at the time of the new policy -- unlike a car insurance agent.

While auto insurance requires potentially years of outreach between the agent and the consumer, life insurance agents might not deal with a consumer again after selling the insurance policy. Instead, the individual may only deal with the life insurance company. That's one reason why it's vital that individuals feel good about their life insurance company.

The life insurance company will be the one who will work with your loved ones when you die. So, make sure you like the life insurance company and feel comfortable that its financial situation is strong. You don't want a life insurance company that might not be there at the end of your life.

One way to do that is to look at Insure's Best Life Insurance Companies and see what consumers think and see the life insurance company's financial picture.

Insurance agent commission rates

What an agent makes depends on the types of insurance policy, such as life insurance, and other factors, including size and location. It can also vary by type of life insurance, including whole life insurance or term life insurance.

On average:

  • Home and car captive agents typically receive a 5 to 10% commission on the first year’s premium, while independent agents average 15%.
  • Life and health insurance agents make most of their money in the first-year premium. Such front-loaded commissions can run anywhere from 40% to more than 100% of the policy's first-year insurance rates.

Your insurance agent could also make money every year that you renew the insurance policy. 

How much do insurance agents make on renewals?

Renewal rates vary by insurance type:

  • For auto and home insurance renewals, an insurance agent makes a 2 to 15% commission (most are in the 2 to 5% range).
  • Life insurance agents make typically 1 to 2% for renewals -- or nothing after three years.

It’s possible to find out the exact amount that a insurance agent is making off insurance policies, but remember all states have different disclosure laws. Many states have laws requiring agents and brokers to disclose all fees and services charged to customers, according to the National Association of Insurance Commissioners.

In most cases, you have to ask. They're not required to spill their guts without prompting.

State insurance regulations

Known as one of the strictest states for insurance regulations, New York operates with a regulation known as Insurance Regulation 194. It’s one of the states with the strictest commission-disclosure rules in the country.

As in many states, New York brokers and insurance agents will be required to tell customers the commission rates they receive on insurance policies sold, if asked. But also, if customers ask, New York insurance agents will have to offer written disclosures of any year-end bonuses from insurance carriers and non-cash rewards, such as prizes and trips.

The New York State Insurance Department's (NYSID) pending regulation grew out of a 2004 bid-rigging investigation by then-State Attorney General Eliot Spitzer. In that case, Spitzer found that commercial insurance brokers were getting under-the-table payments for steering clients to particular insurance carriers.