Skip to content

Understanding Insurance Agent Commissions


Insurance agents play a vital role in the complex world of homeowners insurance; they connect individuals with the right coverage to protect their assets and loved ones. Understanding insurance agent commissions is important for those considering a career in the industry.

At a glance:

  • Understanding the nuances of commission structures is essential for agents, shaping their approach to client interactions.
  • Insurance agents earn commissions from premiums, creating incentives to provide suitable coverage options to clients.
  • Residual commissions promote long-term relationships between agents and policyholders, emphasizing the importance of client satisfaction.

How insurance agents make money

Insurance agents are the intermediaries bridging the gap between policyholders and an insurance company. They’re the experts who guide policyholders through the complex landscape of insurance and help them choose suitable coverage options. But how does an insurance agent earn a living?

One of the most common sources of income for agents is commissions. Insurance agents are usually paid a commission on these premiums, which means that the more policies they sell, the more money they can make. Independent agents, in particular, may have more flexibility with the commission rate they earn, as they can represent multiple insurance companies. 

Captive agents

Captive agents exclusively represent one insurance company; they’re effectively in-house advocates for that insurance company's products and typically receive a salary from the insurance company which provides a reliable income regardless of the policies sold. In addition, they may also receive a commission payment on the policies sold as well as earn bonuses tied to the performance of the insurance company.1

Independent agents

Independent agents, on the other hand, are not tied to an individual insurance provider which means an independent agent has more freedom (in terms of carriers represented) and flexibility (of product). This flexibility can mean more variability in commission percentages, but like their captive counterparts, an independent agent also earns a salary.2 However, unlike their captive cousins, independent insurance agents are more reliant on themselves (or their agency) to drive business growth.

Types of commissions 

Insurance agents receive different types of commissions for their services, variances which incentivize both captive and independent agents to provide excellent service and drive business growth. 

Premium commission

One of the most common ways insurance agents earn money is through premium commissions. When a policyholder buys a policy, a portion of the premium paid by the policyholder goes to the agent as a commission. For independent agents in particular, as their commissions can sometimes be higher than those of captive agents, this creates an incentive for the insurance agent to find their clients’ the most suitable and valuable coverage.3

Contingent commission

In addition to premium commissions, agents may receive contingent commissions. Contingent commissions are additional commissions paid to agents based on certain performance metrics, such as meeting insurance sales targets or maintaining low claim ratios. 4

Commission structures

Commission structures dictate how much compensation insurance agents will receive for their work. There are different commission structures, with residual and upfront commissions being two common structures. 


Upfront commissions are earned at the time the policy is sold and is typically a one-time commission. This type of commission provides a quick boost to an insurance agent's income, especially when they're just starting out or looking to generate immediate revenue. However, it is important to note that not all lines of business pay upfront commissions.  


Residual commissions, or renewal commissions, are typically earned on policies with ongoing premiums, otherwise known as their book of business. As long as the policy remains active and the policyholder continues to pay their premiums, the insurance agent will continue to earn a commission on that premium.

Pros and cons of commission structures

While these structures offer distinct advantages that can fuel agents' motivation and commitment to their clients, they also come with their fair share of challenges. Navigating these challenges is essential for those considering a career in insurance. 


  • Commission-based structures incentivize agents to go above and beyond to find the best coverage for their clients, as their income is directly tied to their insurance sales performance.

  • Independent agents have the freedom to work with various insurance companies, providing clients with a broader range of options.

  • Residual commissions promote long-lasting relationships between an insurance agent and policyholders, as agents will continue to earn from existing policies over time.


  • Commission-based compensation can encourage an insurance agent to prioritize the initial sale, potentially overlooking the best interests of the clients.

  • An insurance agent may prioritize the immediate payoff of short-term insurance sales goals over long-term client relationships.

  • Commissions may cause conflicts of interest for insurance agents, as their financial incentives may not always align with the interests of the policyholders.

Navigating the world of insurance compensation

Understanding insurance agent commissions and compensation is vital for those considering a career in the industry or seeking insurance coverage. Whether you choose to become a captive agent or an independent agent, commission structures play an important role in your financial success, driving agents to provide excellent service and promote business growth. 

While commission-based structures have their advantages, they also have their drawbacks. Navigating these pros and cons is essential for all insurance agents to ensure they strike a balance between financial incentives and client well-being. 



Julia Kagan. “Captive Agent: What it is, How it Works, Pros and Cons.” Investopedia. Published 22 July 2023. Accessed 11 September 2023.,and%20

 Mark Rosanes. “How much do independent insurance agents make?” Insurance Business Magazine. Published 5 June 2023. Accessed 11 September 2023. independent%20insurance%20 agents%20 earn,how%20much%20commission%20they%20receive


4 Julia Kagan. “Contingent Commission.” Investopedia. Published 18 August 2023. Accessed 11 September 2023.

Alyssa Little headshot

About the Author

Alyssa Little | Senior Content Strategist

Alyssa is the Senior Content Strategist at Openly, collaborating with industry thought leaders to provide insightful and informative content in the home insurance space. With over 15 years experience in content marketing strategy, copywriting, and editing, Alyssa has refined her expertise through her work at such companies as Gartner, Nike, and Trupanion. Alyssa holds a BA in History from the University of Puget Sound and an MA in Museum Studies from Newcastle University.

Related Blogs