How do insurance agents get paid?
How do commissions work?
That question come up all the time
and it's natural to ask.
If you're working with us
I mean we let everyone know
here's exactly the commission.
Here's what we're paid full transparency
we believe in that.
But if you've ever worked with someone
and say okay, like how much are they
making off of this?
Or I want more information
but it's tough to get it from my agent.
Maybe my agent yelled at me,
I know that sounds like, what?
But I can't tell you the amount of times
we've seen that
where people have reached out and said
"yeah I asked my agent about
how commissions work,
how do they get paid and they just flipped out on me".
Like, that never made sense to me
because it's like,
how you can do that to someone?
Like they're giving you your money
to open an insurance policy with
you will make a commission.
Like, don't yell at them
because they're finding out how low the premium
which lowers your commission.
Like no!
Get lost, don't do that kind of stuff.
Anyway, I'll get back on track here.
So how commissions work
in the insurance industry?
Is with a traditional whole life
insurance product
taking a traditional here
there are so many different products.
If I take a basic whole life insurance product,
my money can go where?
2 primary areas.
Towards the base premium
or the PUA stands for paid-up additions Rider.
Commissions are different in those 2 areas.
Base premium dollars
typically do not show up in cash value
in the 1st year
and 1st and 2nd year
depends on the product.
PUA dollars show up in cash value
money I can access right away
and accelerates the growth.
So what's in the best interest of the consumer
if cash value is their goal?
The PUA component.
Especially when you look at
the guarantee values.
Now with that said,
how do the commissions work
on those 2 areas?
Base premium first.
So if I take a traditional product
let's assume that I have a
$10,000 base premium.
The insurance company
and product I should say
the company and product
will make a difference here.
If I look at some of the larger companies
or companies that solicit business
in the state of New York
you will see on that $10,000 premium
the commission will range anywhere from 50%
to a maximum of a little over 90%.
Let's just call it 50% to 90%.
If the company
does not solicit business
in the state of New York
then that commission
will range anywhere from the same 50%
all the way up to 135%
huge difference there.
That's because New York state
does have regulations
as far as how much commissions
can be paid out.
And to be clear here
with this New York state thing
is if a company solicits business in New York
they have to abide
by these commissions restrictions
in any and all states.
So if I live out in California
or any state
and I work with a large company
like a Mass Mutual, Guardian,
New York Life, and Northwestern Mutual
it's going to the agent
that receives a commission
will be between that 50% and 90% range.
Depends on the product and again
what they're paying.
So $10,000 base premium.
Let's use a high-end number
of 90% commission in the 1st year.
That'll be what?
$9,000 based off the base premium.
There are renewal commissions
years 2 to 10.
Typically the average renewal is 5%.
So if I'm using a large mutual carrier
that solicits business
in the state of New York
on the base premium
$9,000 on the premium year 1
Years 2 to 10
same $10,000 base premium
we'll assume it's still being paid
$500 is typically paid out
if it's a 5% renewal per year.
If I'm using a smaller carrier
that does not run business
in the state of New York,
what would happen there?
Year 1 $13,000 paid in commission
if I have the same $10,000 premium.
And on the renewal typically
I've seen them higher than 5%
typically between 7.5% to 10% on the renewals,
so a bit richer there.
But we can assume
it's the same 5% in this example
at $500 per year.
The 1st year on the base premium
that's the primary commission there.
PUA dollars the second area.
So if I paid the same $10,000 to a PUA Rider
which I see in cash value right off the bat
almost all of it.
I will receive as an agent
anywhere from 2% to 3% commissions.
Sometimes we see 3.5%
usually it's with a smaller company
that again,
do not have right in the state of New York
but call it 2% to 3% per deposit.
And this is not a fee that comes
out of your cash value
and goes to the agent
this is what the insurance company
pays to the agent
for that business coming to them
as the insurance company.
It's good to be aware of that.
So main thing there is,
how compensation works
on the base premium and PUA area?
Now when we design a policy
for maximum cash value,
what do we always do?
Minimize that base premium.
What that does
is aside from compensation
when you just look at the numbers
you'll see the lower the premium
the greater the cash value
short term and long term.
There's this argument we see sometimes
that the higher base premium
can potentially result in greater dividend
over the long haul.
It's true, it's potential
but we've never seen it actually happened.
In reality we've seen products
typically perform closer to the guarantees
or if they perform at a high level
the minimum premium policy
always generate greater cash values
for the consumer.
That's been a consistency there.
So if a policy is designed properly
like the example we see here up on the screen,
what do we see?
Minimum premium,
minimum commission there.
So we've got the full disclosure
on the commissions
that's actually a 93% commission there
with that particular product and company.
Minimum premium
compare to a product with a higher base premium.
Look at the benefit for you as a consumer.
Less cash value all the way through
greater compensation is paid out.
It's not to say that
high base premium always results in
negativity to the agent hey,
this is just wrong to do,
but in the majority of cases we see this occur.
So I hope that this provides
some additional information and transparency.
If you have any questions
feel free to reach out anytime.
And as always,
I hope this helps.
Hey guys Steve Parisi here.
If you enjoyed the content you just saw
please subscribe,
like,
and hit the notification bell for future videos.
If you'd like more information
or to see some custom policies for yourself,
feel free to call
or email our offices
at the contact information below.