Insurance Agents earn commission.
When you buy any form of insurance the agent who sold you the policy will earn a commission. It doesn’t matter what form of insurance you’re buying such as life, health, auto, homeowner, motorcycle, annuity, business liability, disability, long term care, worker’s compensation or a Medicare supplement, etc. All insurance agents earn commission on each and every form of insurance they sell. Period. There is no such thing as an hourly, salaried or fee based Insurance Agent. They're all commission ONLY.
So what’s my point here?
Well much has been written recently regarding insurance agent commissions on annuities. I can tell you that the commission structure on annuities has not changed one bit since I first got my Insurance License in August of 1985. Typical agent commission on annuities range from 3% to 7% of the first year premium. The average commission is 5%. The average annuity premium is $40,000. I can tell you as an agent I wouldn’t bother investing my time and effort or taking the “risk” of selling an annuity for less than 5%.
What do I mean by “risk?” When an agent contracts with an insurance company to sell their annuity products most all contracts have a first year charge-back provision that reads:
Upon death of the Annuitant during the first 12 months of the contract, commissions will be reversed as follows: 100% - if date of Annuitant's death is during the first 6 months and 50% - if date of Annuitant's death is during months 7-12.
A charge-back is a reversal of the commission that was paid to the agent. That’s right, the agent has to pay back to the insurance company the commission they earned if the client dies or cancels the policy in the first year.
Yes indeed, the dreaded charge-back! It’s a fact of life for Insurance Agents. Some companies have a charge back structure that lasts three (3) policy years such as 100% charge-back year one, 50% charge-back year two, 25% charge-back year three.
So what’s my point? Remember my comment above? “All insurance agents earn commission on each and every form of insurance they sell.” The insurance companies have a problem when it comes to agent commission on annuities. They have to pay the agent about the same amount of money for about the same amount of time and effort spent that the agent would have made by simply selling other forms of insurance.
So the next time you read a newspaper article about lucrative agent commissions on annuities keep in mind the agent can make just as good a living by simply selling other forms of insurance. And let’s not forget about the charge-backs. Could you imagine working in an industry where you have to pay back to the company the money they paid you because your customer died?
Can you name any other business relationship where earned income has to be paid back to the company after the work has been performed?
Could you imagine being paid $10,000 on a $200,000 premium case you worked on for three months and then the client dies within the first six (6) months and now you have to pay back every penny of that $10,000 to the insurance company?
This happens all the time.
So just how lucrative was that BIG case for the agent now? On average the agent will NOT get paid one dime on the next five (5) cases he/she writes until every penny of the commission chargeback is repaid to the insurance company.
As Paul Harvey would say, “... and now you know the rest of the story!”