Advanced Underwriting Consultants

Where to Buy Life Insurance – Using An Agent

Today’s blog is from Life Insurance expert, Linas Sudzius.  Linas is a lawyer, speaker, former insurance company executive and author of the soon-to-be published book
What Most Life Insurance Agents Won’t Tell You. His law firm works with successful people on their estate planning, and with entrepreneurs on their business legal issues.
When he’s not working he enjoys being with his family and listening to audiobooks.

Reach him at

Where to Buy Life Insurance – Using an Agent

Most of the individual life insurance policies purchased are sold through the agency distribution system.  The life insurance company makes its products available to agents, and when an agent sells a policy, the agent earns a commission.

An agent can be captive, in that the agent is an employee of the life insurance company and is expected to sell that company’s products exclusively.  Or the agent can be independent, meaning that the agent is not exclusively affiliated with a single company, and is theoretically free to make deals to sell many carriers’ life products.

Independent agents who sell insurance policies to actual customers are sometimes referred to as retail agents.  Some life insurance companies contract directly with those retail agents.  However, because few agents are capable of selling lots of life insurance without hand-holding, life companies recognize that working with lots of retail agents is a very expensive way to sell their products.

Plenty of life insurance companies work only with wholesale agents, sometimes called managing agents.  The wholesale agent acts as a middle-man between the life insurance carrier and the retail agent.  The wholesale agent’s job is to recruit retail agents and get them to send business to the companies with which the wholesale agent is contracted.  The wholesale agent also becomes the retail agent’s point of contact with regard to information about policies and the underwriting process.  The wholesale agent also acts as the intermediary between the life carrier and the retail agent.

Most people don’t realize that much of the life insurance offered over the web is also sold using the agency distribution system.  That seems counter-intuitive to many.  It would seem that a product purchased with fewer distributors involved in the process should be cheaper for the consumer, and more profitable for the company.  However, it doesn’t work out that way.

Life insurance, as we’ve discussed in our description of products, is complicated.  The underwriting process is also complicated.  The process of naming beneficiaries can also be complicated.  Deciding on the right product in a specific situation can also require a certain level of professional expertise.

If the consumers are approaching the life insurance company directly with their questions, the company would have to hire lots of internal folks to deal with the inquiries.  That’s an expensive proposition.

So isn’t selling products through agents also expensive?  Yes, but life insurance agents only get paid when they sell something. If a company has to hire lots of folks to answer questions, that cost must be paid whether anything is sold or not.  Hence, most carriers choose to distribute their products through agents.

So what’s in it for the agent?  When a policy is sold, the agent earns a commission.

As of the date of this writing, the bulk of the commission for an agent selling a life insurance policy is paid in the first year.  How much is the commission?  It depends mostly on the type of policy and the relationship between the agent and the company.  For certain kinds of individual life policies, it is not unusual for the total first year commission to be more than the first year’s premium.

How is it possible for a life company to pay more commission than it takes in for the policy’s premium?  Good question!  The answer is that the insurance company’s actuaries can predict how long a particular life insurance policy will stay in force, and the aggregate number of annual premiums that will be paid.  Armed with that knowledge, they understand that they can pay more than 100% of the first premium as commission because they’ll recover the expense later—as more premiums are paid.

The fact that most life insurance agents are paid the biggest commission when they sell you something explains much about how they do business. So is the system bad?  I don’t think so!  If it was, life insurance companies and consumers wouldn’t put up with the system.

Life insurance companies like it because they prefer to deal with a relatively few number of agents rather than consumers.  Agents like the system because they get paid fairly for the hard work of selling life insurance.  And consumers seem to prefer it because the products are priced competitively, and they usually get relatively good service—at least during the buying process–from their agent.

Is the agency distribution system perfect?  No.  Is it always the right fit?  Again, no.  For many, though, it’s the most efficient way to buy life insurance.

This post is designed to help educate readers about general matters.  If you need specific advice you can rely on, please consult your professional advisor.