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How Insurance Agents Get Paid, and What it Means for You

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This may seem obvious, but the amount you pay for your insurance directly affects how insurance agents get paid.

Beyond the obvious are these facts. Most agency commissions are 8-16% of your insurance payment. So, if your car insurance cost you $1000 for 12 months’ worth of coverage, the agency that sold you that insurance would receive $80 to $160 as compensation for the sale. This compensation is typically a one-time pay out at the beginning of the policy period. However, when your policy renews the insurance agency is paid again. This time the commission payment is based on your renewal premium. So if your renewal payment goes to $1100 for 12 months’ worth of coverage – the agency commission goes up to $88 to $176. On top of all of that, agencies can also be paid a quarterly or yearly bonus from insurance companies they send a lot of business to.

Why is this important for you to know? The more you pay, the more your agency gets paid. This creates a natural conflict of interest for any insurance agency. As a result, it is important that you have an insurance agency looking out for  your  interest above their own.

Here are a few ways you may protect yourself:

  1. Always  use an independent insurance agency.  Don’t get me wrong, the State Farms, Farmers, Geicos, and All States of the world are good companies. However, they can only offer you insurance from  one  company (their own). Those agencies are holding you captive by the one company that supports them. An independent agent can offer you insurance from multiple companies. This gives you multiple options and price protection.
  2. Ask to see quotes from  all  the insurance companies your independent agent is affiliated with.  This will ensure the agent is quoting all the companies and not just the ones the agency has a higher rate of commission or bonus with.
  3. Work with a  proactive  independent insurance agency.  Make sure your insurance agent re-quotes your insurance needs with all the companies they are affiliated with  prior  to your policy renewal. Re-quoting your insurance each year is a lot of work for the agency. Especially when you compare it to letting your policy automatically renew. However, this proactive approach will ensure you have the most competitively priced insurance each time.

Make your insurance agent earn your business every year.

Category: Insurance

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