Earnings for Agents – Commissions vs. Hourly Pay, Which is Better?
Insurance Agents work hard to make sales, because making the sale is how they make a livelihood for themselves and their families. But is it better to be paid a salary, or work strictly via commission? First let’s talk about who gets paid what and why.
Captive Agents Get Paid Salary
Captive Agents are agents who work directly under the insurance carrier. They are employees of the carrier and represent them and their products. Since the carrier is their only employer, the captive agent receives a paycheck based on either an hourly or a salary basis. Some carriers offer bonuses or incentives to their captive agents if they reach a certain sales goal.
Captive Agents Receive Benefits
Along with being paid a base salary by the carrier they represent, captive agents also receive benefits from working directly under the insurance carrier. Benefits such as health, life, and retirement policies, and paid time off. Captive agents also have a team of support staff that they can rely on when they have questions, as well as having their marketing and advertising materials created and paid for by the carrier.
Independent Agents Get Paid via Commission
Independent agents sell insurance products for any number of insurance carriers. Since the agent has no allegiance to the carrier(s) they represent, they are not paid an hourly wage to market and sell the insurance products they carry contracts for. However, when the agent does make a sale, the commissions can be much more lucrative than salary alone. The downside is that it can take a long time to sell an insurance product, given the agent’s experience.
Independent Agents Pay for Their Benefits
Because independent agents don’t have allegiance to any one carrier and can sell a multitude of products from different carriers, they do not receive the benefits a captive agent would receive. An independent agent has to pay for their own health, life, and retirement policies. They also do not receive paid time off, as they make their own schedules and work on their own time. So independent agents have the freedom to work from wherever, whenever they please. However, independent agents do not have a support staff they can rely on, whenever they have questions or need assistance with underwriting. (Unless they’re partnered with a great FMO like Insurance Advisors Direct!) Independent agents also have to pay out of pocket for their own marketing and advertising materials. (Again, something Insurance Advisors Direct assists their agents with!) Independent agents have more expenses because they operate like an independent small business.
Based on the Department of Labor’s Bureau of Labor Statistics, the average pay for an insurance agent is $49,710 (in 2017).
So let’s say agent A is a captive agent with Carrier A selling Medicare products. Agent A is paid a base salary of $50,000 yearly, with the opportunity to receive a 5% sales bonus for every policy they write and sell.
Agent B is an independent agent who sells Medicare products for Carriers A, B, C, and D. Agent B receives no payment from any carrier until a sale is made. For the sake of this example; let’s say Agent B receives a $1,500 commission from the carrier, whenever they sell a policy for that carrier.
Both agents A and B sell 50 policies in one calendar year. (For this example, we won’t focus on policy renewal commissions.)
Agent A is paid their $50,000 salary, on top of a 5% sales commission. Their sales bonus brings them $37,500. Making their overall salary + bonus equaling a total of $87,500 yearly.
Agent B is paid no salary, but sells 10 policies for carrier A, 13 policies for carrier B, 12 policies for carrier C, and 15 policies for carrier D. Each policy earns Agent B a $1,500 commission. Making their yearly pay $75,000.
As you can see from our previous example, Agent A made more money in that given year. However, Agent A might not receive an increase in their salary for many years, while Agent B is able to increase their commissions every year they operate in their business. This is because with additional experience, comes additional referrals, leading to additional business. Agent B can also sell as many products as they please, because they are not limited to the products of one carrier.
Let’s say it’s year 5, and Agent A is now making $60,000 yearly, 5% sales commission, but is only able to sell 30 policies each year in a saturated local market. Their salary is $82,500 for this year. In the same year, Agent B sold 80 policies because they started selling additional policies through Carrier E. Agent B’s salary for this year was $120,000.
What Else Affects Pay?
The payment structure of an insurance agent is highly dependent on a multitude of factors outside of captivity or independence. Things like experience, people skills, market saturation, location, plan cost, premium cost, and if consumers purchase policies online or not.
The largest benefit of being an independent agent is the uncapped potential. Independent agents who work hard to build their business by networking, participating in community events, marketing their business through multiple channels, and becoming a trusted name and brand; become the most successful in making larger sums of money each year.
Insurance Advisors Direct believes that with the right support, the drive, the passion, and the correct product knowledge; any agent can become successful in their market. Through proper planning, segmentation, targeting, and positioning; agents can get in front of the audiences they want. Marketing to a niche audience of people as opposed to the masses allows agents to hone in on audiences who actually need the products that the agent is selling. Independent agents can more easily make sales when they have built a large network of clients to offer them referrals.
Bottom Line, Commissions are Better
Commissions deliver the uncapped potential to make the most money possible in a business for insurance agents. But large levels of success don’t happen overnight. It takes hard work, passion, and support from others. If you’re looking for a great team to support you in your journey as an independent insurance agent, please consider becoming affiliated with us here at Insurance Advisors Direct. We can help you make the most of your business by offering online training and product information, help with underwriting, and providing physical marketing materials to promote your business.
If you’re looking to start marketing your business online, consider our services at Marketing Advisors Direct. MAD is a new brand under IAD, offering agents the opportunity to market their knowledge and services to an online audience using social media. Reach new audiences you wouldn’t be able to physically by going where they are! Make the commissions you deserve with marketing to the correct people. Check out our blog on Joining a Top Insurance FMO to learn more!
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