Today, I am taking a plunge and clarifying a lot of the rumors and speculation about Life and Health Agents or Brokers.
There seems to be a lot of confusion on just how life insurance agents are paid.
Time to set the record straight so you can become a correctly informed consumer.
So without further ado… here is everything you really need to know about insurance professionals whether they are a licensed Life and/or Health insurance agent/broker.
Types of Licensed Insurance Representatives
There are two types of state licensed people that can sell you life or health insurance. Both must be licensed by your state to market and sell insurance to you. They are termed agents and/or brokers. The two terms are used interchangeably, raising the question as to what the differences are. The simple answer… not very much. At the state level, there are rules which dictate your license title. In Michigan, for example, it is illegal to term yourself as a broker. You are an agent. Other states allow the title broker applied to your license. An independent agent is another term used to describe the term insurance “broker.”
The only real difference is whether or not an insurance professional works for one insurance company (captive agent such as State Farm) or as an independent agent/broker representing multiple carriers.
Captive vs Independent Agents
“Captive” or “career” agents work for only one company. Examples include Farmers and Northwestern Mutual. The only way to purchase coverage from these companies is through their exclusive captive agents. Does that mean these are “better” companies? Absolutely not.
“Brokers” or independent agents can market insurance products from multiple companies. They can find the best product for your needs without being tied to one company.
Pros and cons exist for both. Captive agents know the ins and outs of their company’s policies. Independent agents can shop around for the best price and value, but must learn many companies’ products, which increases the learning curve.
Recommendation: If you have health complications or need a large policy, choose a seasoned independent agent. Experience matters and helps avoid costly mistakes. Many individual cases are more involved than just a low-price term life quote.
Have questions about life insurance? Contact a Broker or call 269-244-3420
How Are Insurance Agents Paid?
Agents and brokers are typically compensated in one of three ways: commission-based, fee-only, or salaried.
Commission-Based Agents
Most agents are commission-based. You, as the consumer, do not pay them directly; the insurance company pays a commission for selling a policy. Commissions are already included in your premiums and approved by state insurance departments.
Commissions are already built into the price of your policy… it doesn’t cost you more to use an insurance agent or broker.
Fee-Only Agents
Fee-only agents, sometimes called insurance counselors, charge you directly, usually an hourly consulting fee. They claim independence because they are not compensated by insurance companies.
Salaried Agents
Salaried agents are rare and usually work under an agency owner in high-volume offices. They are licensed but often serve as sales intermediaries with high pressure to make sales. Service quality may suffer, and turnover is high.
The Reality
Good commission-based independent agents focus on your needs, not pushing products. You do not pay a commission directly unless you hire a fee-only agent. Commissions go to the agency owner, and premiums already factor in these costs.
How Much Does Life Insurance Cost?
Insurance rates are regulated and approved by states. No agent can offer a better rate for the same product from the same company. Your risk profile affects pricing—health, driving history, and family history may impact your premiums. Underwriting standards vary by company and product.
Example: Applying for Policy ABC uses ABC’s rate tables regardless of the agent. Agents cannot add extra fees or alter pricing. Even fee-only agents do not reduce the embedded commission in your premium.
The Take Home: It costs the same to purchase insurance through an agent or directly from a company. Independent agents can save you money by shopping multiple carriers and matching your risk profile to the most favorable product. This is crucial for high-risk life insurance, permanent policies, or large coverage amounts.
Rookies and inexperienced agents abound online; a fancy website does not equal competence. Focus on experience, solutions, and service, not commissions.
Confession: I am commission-based when someone purchases insurance through our office. But I do not receive a salary or payment for my writing content. My goal is helping clients get the best coverage for their needs.
Do I pay my insurance agent directly?
Typically no. Most agents are commission-based, meaning the insurance company pays them. Fee-only agents are the exception and charge you directly for advice.
Is it cheaper to buy insurance directly from the company?
No. Premiums are regulated and include commissions whether you buy directly or through an agent. Using a seasoned independent agent can save money by matching your profile with the best carrier.
What’s the difference between a captive and independent agent?
Captive agents sell only one company’s products. Independent agents or brokers can shop multiple companies for the best fit and pricing for your needs.
How are agents compensated?
Commission-based agents earn from the insurance company once a policy is issued. Fee-only agents are paid directly by you, while salaried agents typically work under an agency owner and do not represent your long-term interests.
Do commissions make insurance more expensive?
No. Commissions are already built into the premiums and approved by state insurance departments. You pay the same price whether buying direct or through an agent.
Michael is a veteran independent life and health insurance agent who specializes in guiding people with even high risk health conditions thru the insurance process. He is passionate about helping individuals and families get their unique financial protection needs met, providing his experienced based advise and delivering affordable, dependable coverage you can count on.