Most insurance companies market several different types of life insurance, and in most cases they pay different commission rates to the licensed agents who sell them. This commission is based on the annual premium for the policy sold, and can range from about 30 percent to upwards of 100 percent for the policy’s first year. In addition, many companies pay commissions of between 3 percent and 10 percent for each year a policy is renewed. In return, the agent is responsible for providing customer service support for the policy. In many cases, insurance companies pay higher commissions for more profitable policies.

Captive vs. Independent Agents

Captive agents sell for a single insurance company and are forbidden from selling products marketed by any other company, while independent agents can sell the products of numerous companies. Independent agents must pay their own business expenses, like office rent, administrative support, technology and related costs. Captive agents typically work in offices and have access to support and infrastructure paid for by the company. Thus, captive agents are usually paid a lower commission for selling a policy than independent agents.

Whole Life Insurance

Whole life insurance, sometimes called permanent insurance, covers the policyholder until death. A portion of each premium payment is allocated toward cash value, which can become a substantial asset over time. Whole life is considered one of the more profitable types of insurance from the carrier’s perspective. The first-year commission paid to independent agents for whole life insurance can range from 70 percent to 120 percent of the first year’s premium. This can run into the thousands or even tens of thousands of dollars for a large policy. Renewal commissions can reach 10 percent of the premium.

Term Insurance

Term insurance covers the insured for a set period of time, usually five, 10 or 20 years. Premiums are much lower and policies are easier to sell, especially to budget-conscious consumers. The commissions paid to agents for term insurance policies typically range from 40 percent to 90 percent of the first year’s premium and up to 5 percent on renewal premiums.

Other products

In most states, life insurance agents are also licensed to sell health insurance and annuities. The commissions paid for health insurance policies are much lower than for life insurance -- often less than 10 percent of the annual premium, especially for group contracts. Another product commonly sold by life insurance agents is annuities, which are tax-deferred long-term savings instruments that are typically purchased with a single premium. Most annuities have a minimum purchase of $5,000, although some can be as low as $2,000. Commissions for annuities can range from about 3 percent to10 percent of the purchase price. These commissions average around 6 percent.