How does a health insurance agent get paid?
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UPDATED: Mar 31, 2021
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- A health insurance agent is paid via a commission
- The commission rate will vary by insurance carrier and also by state
- Be aware of what your agent is paid, as they should be working in your best interest
The process of purchasing health insurance continues to evolve as the years go by. It was not too long ago that the only real way you could buy a health insurance policy was an insurance agent. You would work to get in touch with an agent, and they would then shop on your behalf to the various insurance carriers in the market.
The agent would then return to you with a series of coverage options, deductibles, as well as quotes for the premium charge. Things have evolved in recent years as you can now buy insurance directly online, but that agent relationship is still there.
When it comes to an insurance agent, what exactly is the business model they follow? Why does an agent do this whole selling insurance thing? Have you ever thought about how an agent gets paid? This is an important discussion to dig a bit deeper into as you start down the road of purchasing a health insurance policy.
All About the Commission
The way in which a health insurance agent is going to get paid is through the commission. When you purchase a health insurance policy from a carrier, they are going to have a commission listed that they will agree to pay to your agent.
The commission that is paid out is usually going to depend on the various state regulations. The state of Massachusetts may have commissions that can be paid that is very different from Florida, for example. Typically though the commissions are going to range in value from 2 percent to 8 percent of the premium that you pay. Commissions are regulated.
Doing the math here, if you have a health insurance policy premium of $10,000 annually, you are going to come out to a commission of $500 if you have an agent getting a 5 percent commission back. That is all there is to it. The health insurance provider is going to pay the agent basically for bringing the business to them.
They are thankful the agent brought you as an insured to their book and will pay for that right to ensure you.
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The payment terms for a commission going to your agent are typically going to be based on the life of the policy. In the above example again, you have a health insurance policy that is going to be in effect for a period of 12-months.
That $500 commission that the agent got from that $10,000 policy with a 5 percent commission is going to be broken up over the life of the policy. If you were to cancel your health insurance policy six-months into its life, the commission the agent receives is only going to be $250, not the full $500.
This is because you have not retained the policy, paid the full premium, for the entire 12-months.
The Best Interests
The agent that you have as an insured is supposed to represent your best interests. Their job is to work to get a full understanding of everything that you need from a health insurance perspective. They should be taking the time to talk to you, figure out what your desires are when it comes to coverage.
What are the requirements that you have to have regarding deductibles, coverage limits, etc.? What is the premium that you are looking to pay in exchange for that? The agent needs to be working for you.
They should be talking to as many insurance carriers as they can to figure out what is going to help you, not what is going to get them the highest commission payout.
If they are getting a higher commission, chances are you are paying too much in premium. As a consumer, do not be afraid to ask what the commission percentage will be on a given policy.
Agents Hold Bargaining Power
You would be surprised to hear of the amount of power that an agent has when it comes to negotiation with insurance carriers. If an insurance carrier wants you as a customer, they may be inclined to lower the premium that they offer to you in exchange for your agent also reducing their commission.
This would be a win-win situation for the agent and the carrier as they would be offering you exactly what you need, while both are taking a little bit less in return to gain you as a long-term insured.
A health insurance agent has a significant responsibility to help people gain an understanding of the various insurance plans that are in the market. They need to be able to look out for all of the tiny differences that exist, where the value is, and help you decide which carrier you should sign on with.
When you understand how they get paid from a commission perspective, it helps you gain more of a grasp of what you have to consider when weighing value. As a consumer, you always want to compare premium, coverages, etc. so that you end up with the ideal health insurance policy to meet your needs.