How Much Does My Agent Make When I Buy a Policy?

If you don't like to read, just skip to the fourth paragraph for the numbers

After a long age and careful planning, the guy from your church who sells life insurance has finally got you to agree to let him cover over to deliver his speil.  When he arrives at your door, you notice how unfailingly polite and considerate he his.  He's precisely on time, of course, and when he steps in he is quick to make a mental inventory of your house's interior which he then deftly uses to start the obligatory small talk.  "You sure keep a clean house", he might say, or maybe he'll comment on your kids collection of baseball trophies proudly displayed on the mantle.  He will then offhandedly mention that his kid also loves baseball but has yet to win any trophies at it.. 

His is immacultely dressed in clothes that are nice, well made, conservative, and not too stylish.  His demeanor is somewhat understated, and you could be forgiven for not fully perceiving or appreciating  his command of a particular kind of  showmanship.  Before you have a chance to usher him into the living room where you had expected the meeting to take place, he is somehow already set up in the dining room with two or three brochures (illustrations, he calls them) out for you to look at.  You put on some coffee, and while he is in your presence, It isn't long before a singular impression forms: he is clearly the nicest guy in the universe.  Still, as the presentation progresses, and while he is stressing the importance of ROP or some other kind of rider which will bump of the cost, you are struck by an indecent thought which you are ashamed to ask and never do: "What's in it for him.  If I buy this policy, how much is he going to make?"  Soon, this thought takes over, and a thin fissure of doubt begins to crack the foundation of trust that he has so carefully laid.   Could this nice man be motivated primarily by self-interest?

Why do you need this man in your house?  Why is it that he made the gesture instead of the other way around? It is actually quite simple.  No one would ever buy life insurance without the prodding of life insurance agents.  It's his job to get you to think about the one thing, above all others, people are most loathe to think about: the iron-clad certainty that within 50 years or less you will be dead.  Possibly much sooner, and that if it happens unexpectedly which it so often does, you family can kiss goodbye any semblance of the life they currently lead.

So how much does a life insurance agent make if you buy a policy?  The figure varies, but is typically anywhere between 100% to 75% of the first year's premiums.  Typically, once you have been approved and have sent in your first months payment, your agent will earn that amount times 10 or 12.  If your monthly premiums are $40.00, then there is a good liklihood that your agent will earn around $500 for a standard term life insurance policy.  This figure is a bit higher for Whole Life Insurance and its many variants. 

This is an obsence amount, you think, but is it really?  If you hold, as most people do, that insurance companies never pay out one cent more than they have to for anything, you will soon find that you are entertaining two contradictory notions.  Why would a life insurance company make an exception in this particular case and pay out so lavishly?  The commission payout is the amount required to motivate people to sell life insurance.  If you dont' like talking about or considering your eventual demise, there's a good chance that the nice man who might come over from church doesn't either.  He is there for a diffrent reason.

Frankly, I don't know who in the world would subject themselves to such a meeting if they didn't have to.  Going through the chart after chart, brochure after brochure would be enough to turn most stomachs I would think without ever getting to the part about how you or your loved one might really make out with the double indemnity rider.

For all that though, for they typical working stiff, a simple term policy of between $250,000 and $500,000 at about 20 years is the right thing to do in most cases, especially if there are kids.  The reason is that for most people it really isn't very expensive.  If you're under 40 and in relatively good health it's maybe $40 a month.  If you can ever bring yourself around to doing it, it's probably the right thing to do.  Of course, I would say that : - )