Orlando Harmon
Term life insurance is a type of insurance that has lower costs and commissions compared to other types of insurance. Commissions are a percentage of premiums, so agents are incentivised to promote policies with higher premiums. Commissions can slow the cash value growth in permanent life insurance policies, especially in the first few years of a policy.
| Characteristics | Values |
|---|---|
| Commission on term life insurance | Lower than permanent policies |
| Commission on whole life insurance | Higher than term life insurance |
| Commission on universal life insurance | Higher than term life insurance |
| Commission on term rider | Around 3% |
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What You'll Learn
- Term life insurance has lower costs and commissions than permanent policies
- Commissions are a percentage of premiums, so agents are incentivised to promote policies with higher premiums
- Independent life insurance agents typically earn higher commissions than captive agents
- Commissions slow the cash value growth in permanent life insurance policies
- Some companies allow you to add a term rider during the life of the policy, which can be converted to permanent coverage later
Term life insurance has lower costs and commissions than permanent policies
Term life insurance is sufficient for most people. Term riders typically pay a relatively low commission of around 3%. With whole life policies, you’ll usually have the option to use dividends to purchase paid-up additions or term life insurance.
Some companies will allow you to add a term rider during the life of the policy, which you can then convert to permanent coverage later on. This can lower the total commission.
Captive life insurance agents, who work exclusively with one insurance carrier, typically earn lower commissions than independent life insurance agents, who represent several insurance companies. However, independent agents are often responsible for their own business expenses like rent, office supplies, and advertising costs.
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Commissions are a percentage of premiums, so agents are incentivised to promote policies with higher premiums
Captive life insurance agents, who work exclusively with one insurance carrier, typically earn lower commissions than independent life insurance agents, who represent several insurance companies. However, independent agents often have to cover their own business expenses, such as rent and advertising costs.
Commission rates for whole and universal life insurance plans are often significantly higher than those for term life policies. For example, term riders typically pay a relatively low commission of around 3%. With whole life policies, policyholders can usually use dividends to purchase paid-up additions or term life insurance.
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Independent life insurance agents typically earn higher commissions than captive agents
Term life insurance is sufficient for most people, and it has lower costs and commissions than permanent policies. Commissions are a percentage of premiums, so agents have an incentive to promote policies with higher premiums. Permanent policies, such as whole life insurance, typically don't build cash value in the first year or two because of commissions and other expenses incurred by insurers. Commissions slow the cash value growth in permanent life insurance policies, especially in the first few years of a policy.
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Commissions slow the cash value growth in permanent life insurance policies
Term life insurance is sufficient for most people, and it has lower costs and commissions. Commissions slow the cash value growth in permanent life insurance policies, especially in the first few years of a policy. This is because permanent policies, such as whole life insurance, typically don't build cash value in the first year or two because of commissions and other expenses insurers incur to issue those policies. Commissions are a percentage of premiums, so agents have an incentive to promote policies with higher premiums, like permanent life insurance. These policies generally offer lifelong coverage, plus they have a cash value component that accumulates interest over time. As a result, the premiums for permanent life insurance are often six to 10 times higher than premiums for term life insurance. This may lead some agents to recommend permanent policies, even if the commission percentage is the same, since the total commission they stand to earn is higher.
Commission rates for whole and universal life insurance plans are often significantly higher than those for term life policies. However, agents must ensure that their clients are able to meet premium payments. If the policyholder stops paying and lets their policies lapse within the first few years, insurers may require agents to pay back some of the money they earned in commissions.
To lower the total commission, some companies will allow you to add a term rider during the life of the policy, which you can then convert to permanent coverage later on. The term rider typically pays a relatively low commission of around 3%. With whole life policies, you’ll usually have the option to use dividends to purchase paid-up additions or term life insurance.
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Some companies allow you to add a term rider during the life of the policy, which can be converted to permanent coverage later
Term life insurance is sufficient for most people, and it has lower costs and commissions. However, some companies allow you to add a term rider during the life of the policy, which can be converted to permanent coverage later. This term rider typically pays a relatively low commission of around 3%.
Whole life policies, on the other hand, usually offer the option to use dividends to purchase paid-up additions or term life insurance. Commissions are a percentage of premiums, so agents have an incentive to promote policies with higher premiums, such as permanent life insurance. These policies generally offer lifelong coverage and have a cash value component that accumulates interest over time. As a result, the premiums for permanent life insurance are often six to ten times higher than those for term life insurance. This may lead some agents to recommend permanent policies, even if the commission percentage is the same, as the total commission they stand to earn is higher.
Life insurance companies sometimes pay higher commission percentages for permanent policies, making them more appealing to agents. Commissions slow the cash value growth in permanent life insurance policies, especially in the first few years of a policy. With these long-term contracts, it is important to look at the 20- or 30-year projection of your policy's performance to determine whether the agent's commissions would have a substantial impact.
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Frequently asked questions
Term life insurance has lower costs and commissions than permanent life insurance. Commissions are a percentage of premiums, so agents are incentivised to promote policies with higher premiums.
Permanent life insurance policies have a cash value component that accumulates interest over time. This means that the total commission they stand to earn is higher, even if the commission percentage is the same.
Commissions for permanent life insurance are often six to 10 times higher than those for term life insurance.
Ask your agent about the commission they'll receive. It's OK to do this, but they may be hesitant to share this information. You can also consider laddering life insurance policies to lower the total commission.
