money representing the various insurance agent compensation models

Most people know that insurance agents work off commission. That means they get a specific percentage of the sales they make, which comes from the premiums the clients pay. However, there are different insurance agent compensation models, some good and others not so good.

If you own an insurance agency, selecting the right model isn’t a quick or straightforward decision. For this, you need to consider all the information provided. Then you can set up the appropriate compensation model for your agency.

Types of Commission Models

For the insurance industry, agents get paid commission or a percentage of the premiums for the policies they sell. There are three primary compensation models that agencies follow. These include Residual, Upfront, and Renewal:


Residual commission payments connect directly to premium payments. That means, at the time an agent closes a deal, they get paid a percentage. However, they receive a further commission whenever the client renews the policy, albeit at a lower percentage rate. Although not always, residual commission payments are the most common for automobile and health insurance policies.


Upfront insurance commission payments are quite different. Typically, they’re associated with life insurance, including whole life and annuities. On average, an agent earns 10 percent of the premium purchase, although that can go much higher.

In this case, an insurance agency owner determines the amount of the payment the agency keeps versus what’s passed on to the agent. For larger agencies, the payments often get split between several management tiers. The greatest benefit of upfront commission is that it encourages agents to work even harder to sell policies.


Just as the name applies, the renewal compensation model means that agents receive a percentage whenever a client renews a policy. However, this is usually only 2 to 5 percent of the premium. While it’s not a significant amount of money, an agent with many renewals or renewals of high-priced policies can earn quite a bit more.

Defining Factors

However, the way that insurance agents get paid also depends on several factors, including the type of insurance sold.

Life Insurance

Long-term insurance policies, including life, typically last a minimum of 10 years. Therefore, agents earn a healthy upfront commission. Usually, new policies equate to 40 percent on the first year’s premium. Then for renewals, the percentage drops significantly.

It’s important to note that state laws regulate insurance agencies. For that reason, rules vary from one state to another. Also, many states limit the number of policy renewals an agent can earn commission on. In some instances, commissions stop once a policy hits its 10-year mark from the date of sale.

For life products, different commission structures exist.

  • Heaped – This is the common choice for agencies that sell individual life insurance. As stated, an agent makes the highest commission from selling the initial policy and less for renewals.
  • Level – With this, an agent earns the same commission for both first-year and renewal periods. Typically, this is for group life insurance policies.
  • Levelized – An agent makes a higher commission on the first-year premiums and less on renewals for group life products. However, the difference with this structure compared to the heaped structure is that the percent for renewals is higher.

Health Insurance

The compensation model for health insurance is similar to long-term (life) policies. So, an agent will make the highest commission after selling a policy and then a lower commission upon each renewal. The primary difference is that most health insurance policies expire in about three years.

Property & Casualty Insurance

For casualty, automobile, home, and other property insurance, policies don’t last nearly as long as the other two mentioned. For that reason, the commission model consists of a much lower percentage. Generally, this ranges between 5 and 20 percent, again with renewals even less.

Additional Variables

Along with the type of insurance are more variables that determine how much commission an insurance agent makes.

  • Client Support – This includes the support an agent provides to a client when selling the first policy and after. Excellent support entails building relationships with clients, keeping in touch, providing them with options for new coverage or saving money, and so on.
  • Lead Generation – If an agent generates all their leads, they’ll often earn a relatively high commission. However, if an agency implements a software program that helps generate leads, the commission might drop somewhat.
  • Marketing Strategies – In some instances, an agency will invest in a tool that improves overall marketing efforts. That could be an innovative software program or a professionally designed insurance agency website. Just as with lead generation, this can cause an agent’s commission to drop. However, it also opens the door for building a stronger client base, which equates to more business and, therefore, more commission.
  • Partnerships – If two agents tackle one client as a team, they will split the commission. Although this isn’t overly common, it does happen, especially when targeting a large client.

Choosing the Best Model for Your Agency

Now, you need to decide on the right compensation model for your insurance agency. You want to attract talent by offering agents an excellent way to earn a top commission. You also want to keep great agents by doing the same thing. So, the model you select can play a big role in the success of your business.

Take time to understand and analyze the different compensation models, types of insurance, and the various factors mentioned. That will help you choose the best option for your agency and agents.