Insurance agents are, typically, compensated by a commission equal to a certain percentage of your policy premium. If you want to know how much your agent earns from your auto insurance policy, just ask. Some states require agents to disclose this information when you ask, others do not. However, if your agent refuses to tell you his commission amount, you may want to consider finding a different agent.
Most insurance agents are not paid a salary by the insurers they represent. Sometimes, they receive salaries for stated periods of time at the beginning of their relationship with an insurer to help start their businesses, but these are not typically permanent, according to AMPM Insure. Therefore, an agent's primary source of compensation is policy commissions. When you buy a policy from an auto insurance agent, he receives a certain percentage of the total policy premium and the insurer keeps the rest.
New Business and Renewals
Your auto insurance policy typically renews every six or 12 months, depending on your insurer. Each time the policy renews, your agent gets paid again. In this way, agents with large volumes of business often earn a lot of money, because older policies that renew pay commission in addition to that from new policies they sell. However, the agent may not receive the same commission percentage for renewals as she does for new business, so even if your premium remains the same upon renewal, your agent may earn different amounts of money over time.
Typical Commission Structure
Most auto insurance agents receive somewhere between eight and 15 percent commission when they sell or renew policies, according to Insure.com. This percentage might be higher for independent agents, or those who represent many insurance companies. Captive agents, who represent only one insurer, typically have a fixed commission amount that is set by the contract they have with their parent company. If renewal commission amounts are different than those for new business, the renewals are typically lower.
Insurers often offer their agents incentives and/or bonuses for selling certain volumes of products and meeting certain production goals. Also, independent agents might receive different commission percentages from different insurers they represent. This may pose an ethical dilemma for the agent, since the auto policy that pays the highest commission or the one that comes with the biggest bonus may not be the one that is right for you. Ask about commission structures and other forms of compensation if you are worried that your agent is not working in your best interest.
Stephen Hicks has been writing professionally since 2000. He recently published his first novel, "The Seventh Day of Christmas." He spent three years as a licensed life and property/casualty insurance agent in California. Hicks holds a Bachelor of Fine Arts in cinema studies from New York University.