insurance agency commissions

Insurance agencies typically operate on a combination of salaries and commissions. Anyone who owns an insurance agency has to thoroughly understand the various commission structures so they can figure out which one is appropriate for their agency. Those still working as agents for others while gaining experience should also be aware of commission structures, as this helps you understand how you will be compensated.

Types of Commission and Compensation Structure

As mentioned, most insurance agencies will use a commission structure. Essentially, when you sell a policy to a client, the agency gets a portion of the premium as a sales commission. You will have to share some of that commission with other people who made the sale possible, such as the sales team and any other agents that worked with you.

Residual Vs. Upfront Income

The two main types of commission structures for insurance agencies are residual or upfront income. Put simply, residual income commissions are smaller commissions paid repeatedly over time. By contrast, upfront commissions are single larger payments that you earn at the time you sell the policy. Residuals are much more common for auto and health insurance, while upfront payments are more common for life insurance. Of course, this does vary.

Residual structures make a great deal of sense in the insurance industry, as many policies are designed to be (hopefully) renewed year after year. With this commission structure, your commissions are directly linked to the premiums. Your agency earns an initial commission when you sell a policy, but then you get an additional residual payment at every renewal.

However, it is important to note that there are some limitations to commissions from renewals. In many states, you can only earn residual commissions from a certain number of renewals. Ten years is a common limit for these renewals. Even so, that is a sizable amount and a great way to boost your long-term income.

In situations when you get an upfront commission, it can be significant. For many types of policies, for example, the payments can be 10% or even more of the entire premium purchase. Remember, however, that this is for the entire insurance agency. As the owner of the agency, you have to decide how this breaks down among the sales team and others.

Many Structures Combine the Two

It is also very common to have structures that combine elements of residual and upfront commissions. For example, you may receive a very large commission upfront upon signing the client, then much smaller residuals later.

Upfront commissions tend to be highest for life insurance, along with very low residuals. Health insurance tends to have higher commissions for the first few years, then extremely low commissions after. By contrast, casualty and property insurance typically maintain the lower residual commissions, with the upfront commission being only slightly higher.

Chargeback Commissions

As you choose which insurance carriers to work with and set up your insurance contracts, pay attention to chargeback provisions. These are provisions that let the insurer reclaim the commission they paid you if the client cancels their policy within a certain time. Be careful with these, as some contracts have chargeback provisions that are active for more than a year.

This means that you would have to pay back the upfront commission that you already received. That can be a significant loss for smaller insurance agencies. It also means that if you distributed the commission to employees who are no longer at your agency, you likely can’t reclaim their portion.

You can reduce the risk of these chargebacks by avoiding being overly aggressive with your sales and being honest about products. Even so, some people will change their minds and cancel their policies. As such, it is smart to make sure you have extra funds available in case of cancellations.

What Affects the Commission Structure of Your Agency

As you decide how to structure commissions for your insurance agency, think about who will be involved in the process as well as who is responsible for handling various elements.

Specifically, marketing, lead generation, client support, and follow-up are among the biggest variables. If your insurance agents handle all of these aspects themselves, then they should receive more of the commission your agency earns. If you have separate staff for marketing, client support, or other roles, then you will need to divide the commission in a way that is fair. You want to ensure that everyone who works to get a client receives some of the commission.

Other factors that can affect the division of commissions can include partnerships and retiring agents who pass on their clients to others.


A large proportion of the earnings from insurance agents comes from commissions. As an insurance agency owner, you must decide how you want to structure the division of that commission. Be sure to account for chargeback provisions and consider who is involved in the sale and follow-up.