Independent insurance agents contract with multiple insurance companies to sell their insurance products, including annuities, to individual consumers and commercial enterprises. Their earnings are based upon their sales. Because of this, incomes vary greatly among the ranks of independent insurance agents, but on average, they significantly exceed the average compensation for all occupations. In addition, while insurance companies and agencies prefer college graduates, insurance sales is still a field where a coachable high school graduate with an outgoing, assertive personality can excel.

The First Year

In their first year, independent insurance agents earn commissions based strictly on the premiums paid by clients to whom they sell insurance policies and annuities. The commissions for health, auto, and homeowners insurance range from about 5 percent of the premium to between 15 and 20 percent. By contrast, commissions on life insurance policies can exceed the first year’s premium, and many companies pay 75 percent or more. The commission for annuities, whose minimum cost is usually at least $5,000 and can run into hundreds of thousands of dollars, generally ranges from 4 to 8 percent.

Veteran Agents’ Earnings

After their first year of selling insurance, agents are paid small renewal commissions on every policy that’s renewed, except for annuities, for which no renewal commissions are paid. These renewal commissions continue for many years – often as long as the agent keeps the appointment with the insurance company that issued the policy – and become an important component of an independent agent’s earnings. According to statistics for May 2012 published by the U.S. Bureau of Labor Statistics, the average compensation for independent insurance agents, including first-year and renewal commissions, is about $63,390 annually. About 35 percent of all agents, many in their first few years, earn below $50,000, and another 22 percent earn more than $100,000. By contrast, the average salary of all workers in the U.S. is $45,790.

Covering Expenses

Although the earnings are enticing, independent agents face numerous financial challenges, especially early in their careers. Superior budgeting skills are crucial to success. Earnings are based on results, not effort, so an agent’s income can vary dramatically from week to week and month to month. Agents must shoulder their own overhead costs, and income during the first few years is usually below average both because of an agent’s inexperience and the lack of renewal commissions. In addition, like most other insurance agents, they are independent contractors, not employees, and generally do not have access to company-paid benefits like group health insurance. They must pay income tax and both the employee’s and employer’s share of FICA taxes, but usually are not subject to withholding. Independent agents generally file estimated taxes, and usually aren’t eligible for unemployment insurance.

Working for an Independent Agency

Instead of working completely on their own and paying all their own administrative costs, many independent agents join independent agencies, where they pool their expenses to take advantage of economies of scale. Their commissions are paid to the agency, which takes a percentage to cover costs and pays the balance to the agent. Some agencies offer a desk, a phone, and administrative support, while others offer a much broader range of support, including mentoring and training as well as group insurance and other benefits. Before joining an agency, agents should interview with several agencies to find the one that best meets their needs.