How Do Insurance Brokers Make Money?

how do insurance brokers make money tn min
YouTube video

How do insurance brokers make money? Yes, us big bad mean guys that take your money every month when you make that insurance premium, how do we make money? Today we’re going to go over all the ways that we make money so that the next time you send in that insurance payment, you know exactly how much is coming to us, insurance brokers.

What Are The Ways Insurance Brokers Make Money?

There are a few ways that insurance brokers can make money. The two main ways are by commission and by fees, and then the third way is by profit sharing. We’re going to go over each one of those.


So let’s start talking about commission. Most insurance companies will pay their brokers a commission of anywhere from 10 to 20 per percent. That depends on a number of different factors. It depends on the company and it also depends on the type of business you are writing with them. For example, a lot of companies will pay brokers an extra percentage or two if you package together policies. So if you just write an auto policy with them, you’re going to get a lesser amount of commission verse if you write an auto, and home and umbrella policy for all one client. A lot of times there’s incentives and they’ll give you more of a commission because you packaged all of those things together.


An insurance broker writes you a home insurance policy with Progressive Insurance. The premium that you’re paying for the year is $1,000. Progressive is going to pay that broker 12% commission. So that broker makes $120 from the policy that he sold to you. The majority of the time that commission is paid up front. So even though you’re going to pay over the course of a year, the insurance broker gets the full $120 up front.

Now what can happen is if for whatever reason you cancel or you adjust coverage and the premium goes down, the insurance company will come back to the broker and say, “Hey, we paid you this much money, but now the premium is only this much. So you owe us this much money in back pay.” So that’s the first way, commission.


The second way is by fees and you generally do not see this in the personal insurance world and by personal insurance I mean just your normal auto and home life insurance umbrella, you generally don’t see this. Most of the time, you see it in the commercial insurance or business insurance world where brokers charge fees. You can see it on the personal insurance side, but that’s more of your non-standard stuff. It’s not very common. You’ve probably never ran into it in just your personal insurance. But for things like making changes, even writing a policy, there’s a number of different ways and options that brokers have to charge fees. But if the broker is charging fees, it’s very clear that they’re charging fees, they’re upfront about it and you know about it. It’s not something that is baked into the policy and that’s hidden and that you don’t know about. If you’re getting charged a fee, you will know about it. Or you should know about it, or else that insurance broker is being a little bit shady.

There’s also even a way for… And again, this is more common in the business insurance world for insurance brokers to completely forego a commission so they can tell the insurance company, “Hey, I am foregoing a commission completely and I am only charging a fee to my client.” This is done for a number of different ways, but again, if this is what’s happening, you will be aware of it as the person purchasing this policy. It will be very clear what is happening. So it’s not something you have to worry about that you’re getting charged these fees that you don’t know about.

Profit Sharing

The third way that insurance brokers get paid is through profit sharing. If an insurance broker writes a certain amount of premium with any insurance company, they have their thresholds and there’s other criteria you have to meet, but essentially if the business you are sending the insurance company is profitable, good business the insurance company will share the profits that they made for that year with the insurance broker. So what this does is this incentivizes the broker to go out and find the type of profitable business that these insurance companies want.

Who Pays The Insurance Broker?

Now for you as a consumer, it’s important to know where the money is coming from.

So a lot of people ask the question, does the commission come from me?

Do I have to pay you the commission as my insurance broker?

The answer is no.

When it comes to commission, that is baked into the policy premium. So it’s not coming out of your pocket. Rather, the insurance company is paying the broker directly. It has nothing to do with you as a consumer. When it comes to the fees, yes, that is coming directly from you and again, that’s why I say if you’re being charged a fee, you are going to know because you are going to pay that directly to the broker in addition to the policy premium that you’re paying to the insurance company.

One other point when it comes to commission, know that every single time your policy renews, which is generally every six months or every year, the insurance broker is getting paid a 10 to 20% commission again on that policy. So that gives the broker incentive to take care of you as the client year after year because every time you renew your policy, the broker gets paid again.

Are Brokers More Expensive To Use?

So then the question always comes up: insurance brokers sound kind of expensive to use. We have these fees, these profit sharing, these commissions. Is it better just to go directly to an online company or to an actual agent like an Allstate agent or a State Farm agent? And the answer is generally no. In fact, in most cases an insurance broker, because they have more options with more companies, is generally able to find you a better price than if you go direct online or call a 1-800 number.

Here’s the reason why. As I’ve talked about, the commissions are baked into the policy. Your policy premium is made up of a number of different expenses and factors. So one of those expenses is the commission that the insurance company is going to have to pay to the broker. That’s an expense. An online company, direct online company, doesn’t have that expense, but they have other expenses. A lot of marketing expenses because they have to be a lot more clever in their marketing because they don’t utilize brokers who are out there soliciting business on behalf of the insurance company. So it’s just a different business model, but the insurance policy itself is generally not going to change that much from using a company that uses a broker versus using an online direct company.

One other point to point out in that scenario is if you go direct online or direct 1-800 number, you’re not going to have an agent or a broker who is there to look out for you and to advocate for you. Whereas if you use a broker that is your point of contact, you don’t have to call a 1-800 number. Rather, you can call the broker and he can be an advocate and help you, and guide you, and direct you. Whereas again, you don’t get that if you go the other route.

How Much Do Insurance Brokers Make?

So the question is how much do insurance brokers make? Well, according to ZipRecruiter, the average insurance broker makes anywhere from 60,000 to $70,000 a year. Of course, that can vary greatly. There’s thousands of brokers in the country and so you can have a lot of them on the bottom end that don’t do that much business, don’t make a lot of money. Then you can have a huge swing that makes well over 60 to 70,000 a year. So it all depends on the individual broker, but on average, brokers are making between 60 and $70,000 a year.

So now you know how much insurance brokers make, how they make their money and where that money is going every month when you send in your insurance premium. If you have any other additional questions, please reach out to me. I’m happy to answer and be very transparent and give you all the details you want.

Please complete the form below for a quote.

Request Your Proposal Here

Are you ready to save time, aggravation, and money? The team at Heritage Insurance is here and ready to make the process as painless as possible. We look forward to meeting you!