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What Is the Average Life Insurance Commission?

Although the insurance industry directly and indirectly employs millions of people, it's a highly competitive work environment. Unlike many other financial professionals, insurance salesmen and "initiators" earn the bulk of their annual incomes through commissions and other incentive payments. If these professionals earn base salaries, these payments tend to be quite small in comparison to their potential commission earnings. As such, cyclical economic factors can play a powerful role in determining whether a given insurance initiator has a lucrative year.

In order to prevent a boom-and-bust cycle from hijacking the insurance industry and creating recurring periods of large-scale employee turnover, many insurance companies permit their employees to take "draws" against commission during slow periods. These draws are essentially cash advances that must be repaid according to a strict repayment schedule. Although most draws don't carry interest income, they can still eat into the take-home earnings of an insurance professional.

If you're looking to make a living in the insurance industry, you should first determine whether you're suited to a high-pressure, sales-driven environment. Before you can be hired by an insurance provider or agency, you'll need to prepare for a difficult exam that confers a license to sell insurance. These tests are administered on the state level and may vary considerably from place to place.

Once you've passed this test and received your insurance license, you'll probably be able to secure an entry-level position in short order. However, it's likely that you'll be subject to the limits imposed by an initial period of "probationary employment" that could last between 60 and 90 days. During the first part of this period, you'll receive on-the-job training specific to the company for which you'll be working.

Once this is done, you'll be left to your own devices on the sales floor. In most cases, you'll be given initial production targets that shouldn't be terribly difficult to achieve. If you're able to reach these goals, you'll solidify your relationship with your employer and may receive increasingly ambitious goals as the months pass. If you can't reach your initial goals, you may be terminated or reassigned.

You'll earn a significant commission on each sale that you make. While these commissions vary widely between companies, they tend to be front-loaded. For term life insurance policies, between 30 and 120 percent of the first year's premium may go directly into your pocket. After this initial payout, you may receive annual "residual" commissions of between 1 and 5 percent of each policy's premium.


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