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.

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Laura Adams is one of the nation’s leading finance, insurance, and small business authorities. As an award-winning author, spokesperson, and host of the top-rated Money Girl podcast since 2008, millions of readers, listeners, and loyal fans benefit from her practical advice. Laura is a trusted source for national media who frequently seek her practical advice on various finance topics for TV,...

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insuranc...

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Reviewed by Leslie Kasperowicz
Farmers CSR for 4 Years

UPDATED: Nov 29, 2021

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Insurance Agents and Insurance Brokers Summary
Insurance Agents and Insurance Brokers FactsFrom the Experts...
An insurance agent sells policies while representing an insurance company or companiesNAIC
An insurance broker sells policies while representing the customerNAIC
Average annual salary for insurance agents is $50,940/yrBLS
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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.

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.”

Watch this video from Allstate to learn more about what insurance agents typically do for clients.

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.

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 FactsDetails
2019 Median Pay$50,940/yr
Number of jobs, 2018475,900
Job growth projection10% over the next 10 years
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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.

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.

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 SpecialtyFirst Year Policy Sale CommissionPolicy Renewal Commission
Home Insurance Agents8%-15%2%-15% (mostly 2%-5% range)
Car Insurance Agents8%-15%2%-15% (mostly 2%-5% range)
Life Insurance Agents40%-100%1%-2% (for years 2 and 3, but nothing after)
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As you can see, home and auto insurance have similar commission rates, while life insurance commission rates are considerably higher. So how do insurance agents get paid? They are paid commissions from the insurance company.

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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.

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.

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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 Insurance Brokers and Agents Make Money

Still have questions about how insurance brokers and agents make money? Read through these frequently asked questions to learn more.

#1 – What is the property and casualty insurance agent commission?

Property and casualty insurance agents are insurance agents within the home, auto, and business sector, and are paid on commission. We already discussed the commission averages for home and auto, and business is in the same range of about eight to 15 percent per policy sold.

#2 – How do health insurance agents get paid?

Health insurance agents are either paid by commission from the insurance companies or by flat fee from the policyholder. In the latter case, there is a fee for new enrollees as well as one for renewals.

#3 – How do Medicare insurance brokers get paid?

Medicare insurance brokers are paid on commission through the insurance companies. This cost is typically built into the monthly premium for Medicare policies.

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