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Can Insurance Agents Collect Fees and Commissions?

Yes. Insurance agents can collect fees and commissions; however, they are not allowed to “receive any compensation, other than commissions deductible from premiums on insurance policies or contracts, from any insured or prospective insured for or on account of the negotiation or procurement of,

Or other services in connection with, any contract of insurance made or negotiated in this state or for any other services on account of such insurance policies or contracts, including adjustment of claims arising therefrom.”

In the United States, the only way insurance agents can collect such compensation is if the said compensation is based upon a written memorandum, signed by the party to be charged, and noting or explicitly outlining the amount or extent of such compensation.

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Nevertheless, the fees and commissions an insurance agent generally makes come down to the number of policies sold, the retention of policyholders, loss ratios, and more.

According to reports, the Insurance agent job market is steadily experiencing good growth. There are at present over 500,000 insurance agent jobs in the U.S., and this is projected to increase by 7% from 2020 to 2030.

Note that irrespective of the condition of the economy, there is always a need to buy insurance coverage. And one very interesting thing about an insurance agent is that a typical entry level for education is a high school diploma or equivalent.

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As an insurance agent, if you intend to work for fees and commissions, then there are numerous factors you need to consider.

Commission can prove to be great, but it can also come with a magnitude of stress. When you work for a salary, your pay is set, and that’s that.

However, with the commission, if you put in extra work and increase your insurance sales, you will see it in your paycheck. The advantages of commission can be related to you being your own boss and owning what you make.

How Do Insurance Agents Make Money?

  1. Insurance premium base commission

A good percentage of insurance agents are known to work on a commission basis and this is dependent on the premium charged to the policy.

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However, you need to ensure you understand the term base commission and what it entails. The base commission refers to the standard commission an insurance agent will earn for the policy sold, and it’s most often a percentage of the premium.

The coverage and line of business sold to determine what commission applies. For instance, an insurance agent may make a 10% commission if they sell an auto insurance policy, while they may make a 15% commission on a general liability policy.

  1. Supplemental or contingent commissions

Insurance agents can in most situations earn what is referred to as supplemental or contingent commission. Note that this sort of commission rewards stipulated metrics the agent attains, including premium dollars sold, policyholder retention, or growth of the insurance book.

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The supplemental commission is most often stipulated at the very beginning of a given year, at a set percentage. Once the year is over, an insurance company will evaluate if the insurance agent attained those targets to guarantee the supplemental or contingent commissions.

  1. Payment on salary

In this situation, they earn based on a set salary structure. A salary might not be as advantageous financially for an insurance agent, because the performance of the agent is still dependent on what they sell. Most often, the insurance agent will only earn the salary that they agree with the agency for that exact year.

Common Commission Structures in Insurance

There are various commission structures in the insurance industry. As an insurance agent who is eager to make good income, it is important you understand what to expect from a payment perspective. The commission models will impact not just how much you earn, but how and when you get paid, too.

  1. Residual commission

The residual commission structure remains the most prevalent within the insurance industry. For agents who work with this model, you have commission payments set in direct relation to the premium.

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For instance, if you succeed in selling a car insurance policy, you will be paid a percentage of the premium at the time of the sale. Also, note that the sort of coverage you sell will determine the percentage of the premium you get as a commission.

It is also possible to earn a commission if your client renews the policy when it comes up after the original in-force period. The renewal percentage rate will, however, be quite lower when compared to a new business commission percentage.

  1. Upfront commission

This is another common commission arrangement, especially in the field of life insurance or annuities. Once the initial policy sells, the percentage of the premium you earn in year one is significant and might go as high as 40 to 90%. After the initial year, it goes down to around 2% to 5% of the annual premiums paid into the policy for that renewal year.

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Keep in mind that it falls on the insurance agency owner to decide the exact amount the agency keeps for commission and how much the agent gets.