How Insurance Brokers are Paid

Posted on August 28, 2009 in Life Insurance Canada News
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How does your broker earn their keep?

All insurance advisors, both captive agents (those working for one company) and independent brokers (those working for multiple companies) are generally paid commission when an insurance policy is put in force.

It's cruicial to note that the agent/broker is paid by the insurance company. However, the media and consumer skepticism has done a lot to create misunderstanding. The following are points often misunderstood regarding the payment process:

Life insurance commissions drive up the price of the policy- Life insurance policies, whether sold via salaried employees or self-employed brokers, have distribution costs. The insurance company includes the price of distribution inside the price of their policies.

Companies that use multiple distribution models for the same life insurance product, eg. RBC Insurance or Manulife, charge the same premiums regardless of how the consumer buys the policy. A $200,000 Term 10 policy from Manulife will be the same rate whether the policy is bought via their call centre, website, or an independent broker.

Two advantages of working with a broker are the following:

a) He/she can advise you on the best type and amount of coverage. Many companies change underwriting criteria or protocols so its important to work with a broker who is up to date on the latest trends.

b) He/she can shop the market for the best premium.

Life insurance commissions are negotiable- Life insurance commissions are not negotiable. It's not like buying a car or a house. Once again, the commissions are built into the distribution costs of the policy and cannot be altered. This is an important point that many conusumers do not fully understand.

Whole Life or Universal Life policies pay higher commissions than Term Life policies - Life insurance commissions are based largely on the premium of the policy, i.e. the higher the premium, the higher the commission. Whole and Universal policies have higher initial premiums than Term policies, but the Whole and Universal policies are bought once. Term policies increase in cost as the insured gets older, so they will buy multiple term policies over their lifetime. Each time a new policy is bought, a commission is paid, but more importantly to the consumer, each time a policy is bought the applicant is older, so they're paying a higher premium. If his/her health has changed, the premiums will be significantly higher and/or the coverage will not be available. It is key that the insured have a keen understanding of how much life insurance they need and how the different life insurance policies work.

It should be noted that many insurance companies have recently lowered the commission rates on their Permanent policies especially guaranteed Permanent plans such as Term 100 or Universal Life Term 100 plans and increased the commission rates on Term 20 policies.  Historically low interest rates have been playing havoc on the profitability and viability of Guaranteed Permanent Life Insurance policies in Canada.

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Some companies pay higher commissions than others - Commission rates can vary slightly from one company to another, but given that insurance commissions are a fixed cost within the policy, this should have no impact on the consumer decision.

Make sure the broker works with multiple carriers, some brokers, while independent, only work with two or three. Our brokers have access to 15 different life insurance carriers, ensuring you get the best possible rate.

If you have any questions about broker commissions, don't hesitate to call us at 1.866.899.4849. You can also get a free quote from our online Term Life Instant Quote Page.

11 Comments

  1. Gervindradeo Krishn 10/18/2009 at 11:46 pm

    What difference does it make how they get paid.Somebody have to pay them.Everyone have to be paid for their services.They provide a valuable service to the community at large.They explain,they compare and inform the consumers.They dont make the millions that some executives make.They do an honest days work.Tell the media to back off and leave them alone.Tell them to go look for some more pressing issues.The insurance agents deserves every penny they make.

  2. LSM Insurance 10/19/2009 at 11:52 am

    Hi Gervindradeo,

    Thanks for the note. I agree effective and useful insurance brokers deserve their compensation. The purpose of the article was dis-spell certain myths. Example – Life insurance commissions are negotiable- Life insurance commissions are not negotiable. It’s not like buying a car or a house. Once again, the commissions are built into the distribution costs of the policy and cannot be altered.

  3. Don 05/16/2010 at 12:53 pm

    I am an Insurance Advisor and I have been a sales advisor for the past 25 years, only the last 6 were with a life insurance company. It is by far the most difficult job I have done, but also the most rewarding. Its disturbing to me the trend in our industry to move us closer and closer to full disclosure of our income.

    Some things that get done politically, are ultimately not in the best interests of the general public. Forcing draconian rules on our industry, in the interests of protecting the general public, may not have the intended outcome.

    In the Mutual Fund industry, they are making the regulations so incredibly difficult to comply with, that advisors are giving up their investment licenses, and concentrating on their insurance business. The end result will be a lot of clients who will not have their retirements properly funded. The problem is already bad enough, let alone increasing it this way.

    Most people don’t or won’t act on their own to get life insurance, and about 60% of Canadians are under insured. Having life insurance agents working to help these people is vital for their family’s protection.

    There is a trend to eliminate commissions and the end result of that will be a huge drop in insurance policies placed. This will result in financial disaster for many Canadians.

    There is nothing wrong with getting paid for doing a good job.

    I’ve noticed that the more difficult a thing is to sell, the greater the commission paid. Insurance advising in no easy task, and the rewards should be equal to that task. If it was easy, you would buy your insurance at Costco or Walmart.

  4. LSM Insurance 05/16/2010 at 7:04 pm

    Thanks for your note – interesting insights.

  5. Gervindradeo Krishn 05/18/2010 at 12:36 am

    Like i said before that it doesent matter how they are paid they preform a valuable task and service to humanity.Those that question their role should walk in their shoe before condeming them.
    The insurance company on the other hand is like any buisness they have to stay competitave in order tosurvive.Beat it and suck it and suck it up to those that cant understand how this system works.

  6. Dwight 05/14/2013 at 10:05 pm

    If I told you I had 6 months to live….what’s that monthly premium look like? Is that even allowed?

  7. LSM Insurance 05/15/2013 at 8:38 am

    Depending on the type of illness – you would likely be looking at a Guaranteed Issue policy. These policies have no medical tests and no health questions and the insurance company builds themselves a buffer by limiting the payout in the first 2 years for non accidental deaths to a return of premium plus interest.

  8. Leslie 01/06/2014 at 2:01 pm

    How do I know if my insurance broker qualified for a conference like the one mentioned in this Globe and Mail article and if it influenced his advice link to theglobeandmail.com

  9. LSM Insurance 01/06/2014 at 2:03 pm

    Hi Leslie, The results to these contests are not public. You could simply ask the broker or if you know someone within the insurance company they would likely have access. In terms of it influencing his/her advice you could always ask for a second opinion.

  10. Ben 02/13/2014 at 11:12 am

    Please confirm me,How much
    insurance agent make,
    Let’s say premium
    $50/month
    Look forward to hear from you
    best regars
    Benjamin Tjioe

  11. LSM Insurance 02/13/2014 at 12:56 pm

    It really depends the company and the plan and the agents bonus level. More productive agents are geenerally paid more than less productive agents. On a $600 a year sale the commission to the broker would likely range between $500 and $700 could be more or less. There is also chargeback on commission if the policy lapses in the first 2 years. Some companies do have lifetime chargebacks on a portion of the commission.

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