by glenn on July 29, 2015
I continue to read online articles that claim life insurance brokers sell certain products because their commission is higher on certain products. These articles then always follow up with suggesting consumers need to delve into the fine details of how brokers are paid. Doing so apparently protects your best interests.
I disagree entirely. If I tell you exactly how I’m paid, it’ll make exactly 0 difference to the products I recommend or the premiums you pay. There’s a certain morbid curiosity in knowing someone else’s income and I believe that’s why this myth gets propogated. Not because it impacts sales or your premium, but because people are fascinated with the idea of a commission.
However, I do believe that some advisors are more prone to selling some types of insurance or some companies more than others. Below
I’m going to explain first of all EXACTLY how advisors get paid. Then I’ll explain how brokers *actually* get motivated to sell a product or company. And finally, I’ll show you how to avoid those potential pitfalls – and it’s not going to be by having a conversation about commissions.
How do life insurance brokers get paid?
Life insurance commissions have two tiers – the base commission, and the ‘override’. Base commission is fixed per product, per company and is effectively a percentage of 1st year’s premium. Override is a percentage of base commission and varies by how much volume an advisor does. Overrides would range from 120% to 180%.
Here’s some real life examples, based on a $1000/year premium. Note that the commission is effectively a total, one time for the life of the policy. These commissions are not paid every year.