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If you’re in the market for life insurance, you can buy a policy online, directly through an insurer or with the help of an agent. Part of understanding how to shop for life insurance smartly is knowing how agents get paid.
What is a life insurance agent?
Life insurance agents sell life insurance policies, but who they work for can differ depending on the kind of agent. There are two types of agents: captive and independent.
Captive agents are tied to one insurer and only sell their products. Independent agents, sometimes referred to as brokers, often sell policies from multiple life insurance companies.
Different types of life insurance agents
Below are a few key differences between these two types of professionals.
Independent agents
Policy options: May offer policies from multiple insurers.
Fiduciary duty: Must act in client's best interest.
Fees: Usually charges a consultation fee.
Captive agents
Policy options: Typically offers policies from one insurer.
Fiduciary duty: Must act in company's best interest.
Fees: Doesn't charge consultation fees.
Fiduciary duty is a legal term that describes a situation in which someone — in this case an insurance broker — has a responsibility to act in the best financial interest of someone else. Failure to do so as defined by state laws could result in legal and financial penalties.
What are life insurance commissions?
Life insurance commissions are the income life insurance agents earn for selling a policy. Most commissions are structured as a percentage of the premiums you pay.
Some life insurance agents depend exclusively on commissions for compensation. Other types of agents may receive a salary or bonuses in addition to commissions for the policies they sell.
Did you know...
In some states, agents have to disclose the amount they’re earning in commission if the applicant requests it. How life insurance commissions work
Commission structures vary by policy and company. But typically, life insurance agents get 60% to 80% of the premiums you pay on a term life policy as commission in the first year. They collect smaller commissions in later years. Added up, 5% to 10% of all the premiums you pay over the life of the policy could go to commissions.
Life insurance companies paid out $63 billion in commissions in 2024, according to the 2025 ACLI Fact Book, the latest data available. This accounted for 5% of insurers' total operating expenses.
The commission on permanent policies is typically higher for the first year the policy is active. If you stop paying premiums and your policy lapses in the first few years, the insurer might ask your agent to pay back what they earned in commissions.
🤓 Nerdy Tip
Even if your agent doesn’t disclose their commission, you can come up with a ballpark estimate. For example, say you’re paying around $5,000 a year for a whole life policy and your agent gets a 70% commission. In the first year, your agent would earn $3,500 but in the second year that could fall to as little as $250 or less annually. » MORE: Term vs. whole life insurance
Why agent commissions matter
Since commissions are a percentage of premiums, agents have an incentive to promote permanent policies. These policies cost more but offer lifelong coverage, plus they can accumulate cash value 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. This is in part because the total commission they stand to earn is higher.
Did you know...
Permanent policies, such as whole life insurance, typically don’t build cash value in the first year or two. This is because of commissions and other expenses insurers incur to issue those policies. Life insurers sometimes boost the appeal of permanent policies by paying higher commissions to agents. This is mainly because cash value life insurance policies require more “servicing.” They’re typically in force for a longer period of time, and some policies demand constant monitoring of the investments.
Finally, commissions slow cash value growth in permanent life insurance, especially in the first few years. With these long-term contracts, it’s more important to look at the 20- or 30-year projection of your policy’s performance. This will help you to determine whether the agent’s commissions would have much of an impact on your policy’s growth.
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How to be a smart customer
Ask your life insurance agent about the commission they’ll receive.
It’s OK to do this, but just know that the agent may be hesitant to share this information because commissions can vary for many reasons.
For example, their commission percentage may increase based on the dollar amount of premiums they place with a company over a year. They may get a 60% commission at the beginning of the year, but that percentage could increase significantly as the year goes on.
Look into “low-load” insurers.
These companies have salaried “consultants” rather than commissioned agents. In comparison, “load” insurers — which make up most of the market — offer commissions to their agents. No matter which type of insurance company you go with, it’s more important to look at long-term policy performance than commissions.
Consider laddering life insurance policies.
Term life insurance is sufficient for most people, and it has lower costs and commissions. But if you want to buy cash value life insurance, you might be able to lower the total commission by blending term and permanent policies.
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 low commission of around 3%. With whole life policies, you’ll usually have the option to use dividends to buy paid-up additions or term life insurance.
Commissions should not be the deciding factor in whether to purchase a life insurance policy. While a specific policy may have higher commissions, it could have lower costs of insurance. It might also charge lower fees or pay a higher interest rate on the cash value component.
» MORE: Average life insurance rates
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- 1. American Council of Life Insurers. 2025 ACLI Fact Book. Accessed May 18, 2026.
