- Insurance Franchise
How Insurance Agents Get Paid: Commission Models, Compensation Types, and What to Expect
Aug 13, 2025
Understanding how insurance agents get paid is essential for anyone considering insurance agency ownership. As an agency owner, your income will be tied to the policies you sell, the carriers you contract with, and the structure of your compensation agreement.
This article covers how agent compensation works—breaking down commission structures, bonus systems, fee-based income, and how it all differs across business models.
Commission Basics: The Foundation of Insurance Pay
Most insurance agents earn the bulk of their income through commissions. This is a percentage of the premium paid by the customer for a policy.
| Product Type | Typical First-Year Commission (Captives) | Typical First-Year Commission (Independents) |
|---|---|---|
| Auto Insurance | 5%-10% | 10%-20% |
| Homeowners Insurance | 5%-10% | 10%-20% |
| Commercial P&C | 10%-15% | 10%-15% |
Renewals typically generate smaller residual commissions. Captive agents generally earn 5-10% on renewals, whereas independent agents’ renewal commissions can vary more widely, ranging from as low as 10% to as high as around 20%.
Commission percentages can also vary based on the agent’s experience level, volume of business, and the commission schedule agreed upon with the carrier. Some carriers offer tiered commission structures that reward higher production with increased payout.
Independent Agents: Full Commission, Full Responsibility
Independent agents contract with multiple carriers and generally retain higher first-year commissions than captive agents. However, they are responsible for all their own costs, including tech, marketing, compliance, and servicing.
Pros:
- High commission potential
- Full ownership of the book of business
- Freedom to choose carriers and clients
Cons:
- Must handle all client acquisition, marketing, service and back-office infrastructure
- Pays for all licensing, E&O insurance, and technology independently
- Must negotiate all carrier appointments
| Expense Type | Who Covers It (Independent) |
|---|---|
| Marketing | Agent |
| Carrier Appointments | Agent |
| Licensing & CE | Agent |
| Tech Stack | Agent |
| Servicing | Agent (in-house or outsourced) |
In our article “How to Start an Insurance Agency”, we discussed how startup costs for independent agencies can range from $20,000-$175,000 depending on infrastructure and staffing. Compensation must be considered in that financial context.
Franchise Agents: Shared Revenue for Shared Support
Franchise agency owners operate under an established brand and access built-in technology systems, carrier contracts, training, customer service and marketing resources. The overall commission earned on a policy is typically split between the franchisee and the franchisor. These commission splits can vary, especially if the franchisor provides post-bind servicing and other enhanced support.
Pros:
- Access to pre-negotiated carrier relationships
- Provided tech, marketing support, and service center access
- Faster time to profitability due to operational efficiencies
- Brand recognition that helps drive growth more easily
Cons:
- Reduced payout per policy due to royalty or tech fees
- Must follow brand guidelines and franchise terms
| Expense Type | Who Covers It (Franchise) |
|---|---|
| Marketing | Franchisor + Agent |
| Carrier Appointments | Franchisor + Agent |
| Licensing & CE | Agent |
| Tech Stack | Some franchise systems provide their own proprietary technology or third-party software |
| Servicing | Some franchise systems provide service while others do not |
Article 2 of this series, Captive, Franchise, or Independent: Which Insurance Agency Model Is Right for You?, showed that franchise models often come with faster onboarding and support infrastructure that can reduce the time to cash flow positivity.
Captive Agents: Salary, Commission, and Quotas
Captive agents typically represent a single carrier (e.g., State Farm, Farmers) and are paid through a mix commissions and bonuses. Some captive companies offer initial base salaries as well. They often work under quotas and may have more structured compensation packages.
Components:
- Base salary or draw: May be provided as an advance on future earnings
- New business commissions: Often 5%–10%, lower than independent agents
- Renewals: Typically smaller, and in some cases, owned by the company
- Bonuses: Offered for hitting sales targets or maintaining persistency
Some carriers offer perks such as office stipends, health insurance, and retirement benefits, particularly for high performers.
Bonuses All agency types may qualify for additional income based on performance:
- Production or contingency bonuses: Rewards based solely on the amount of premium volume an agent writes with a carrier during a certain period (monthly, quarterly, annually).
- Contingency (Profit-Sharing) bonuses: Rewards based on the profitability of your book of business with a carrier. In simple terms, they are rewards given when the carrier’s loss ratio—defined as the percentage of claims paid out relative to the premiums collected—meets favorable thresholds, leading to higher profitability for the carrier.
- Retention bonuses: Rewards for keeping a high percentage of clients renewing policies.
- Cross-Sell or Product Mix bonuses: Incentives for selling multiple types of policies to the same client or meeting carrier product mix goals.
New Agent or Startup bonuses: Temporary bonuses designed to support and motivate agents in their first years. These bonus structures can be highly lucrative but also competitive. Some carriers publish performance dashboards that track agents' progress toward bonus thresholds in real time.
Bonus programs, eligibility requirements, and payout structures vary by carrier and may depend on factors such as agency size, location, tenure, and product lines sold. Not all carriers offer every type of bonus, and terms may change over time.
Source: Understanding Insurance Agent Commissions
What to Expect in Your First Year
New agents should expect to work hard for every dollar in year one. Key realities:
- Income comes mostly from first-year commissions
- Most time is spent prospecting, quoting, and networking
- Expenses often exceed income during the startup phase
- Renewals and bonuses build slowly over time
First-Year Budget Priorities:
- Lead generation and brand awareness
- Technology stack and quoting tools
- Licensing, E&O insurance, and carrier appointments
- Networking and community visibility
Break-even point: Insurance agents often don’t break even for multiple years until they have built up a book of business with meaningful renewal commission revenue.
Tip: Revisit our Hidden Costs article (Article 4) to avoid budget pitfalls in year one.
New agents are advised to treat their agency like a true startup: build a 6-12-month cash flow projection, track expenses meticulously, and create weekly outreach targets. Staying organized early is the best way to stabilize earnings.
Final Thoughts
How you get paid as an insurance agent depends heavily on your business model, contract structure, and ability to generate and retain clients. While commission is the cornerstone, bonuses, fees, and shared revenue all play a role in long-term profitability.
If you’re weighing different paths, remember:
- Independent = control and full earnings, but full overhead
- Franchise = support and scalability, but shared revenue
- Captive = brand power and security, but limited flexibility
Align your compensation expectations with your personal goals. Are you building an asset for the long term? Prioritizing speed to revenue? Seeking predictable income?
Review Articles 1 through 4 of this series to match your compensation goals with the model that best supports your business vision. And when you’re ready to explore a franchise option with built-in support, Brightway offers a scalable, proven way to start strong and grow confidently.