How life insurance brokers earn

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A life insurance broker is compensated to provide the best life insurance for your needs. But how does this process work? To answer this question, we have described what insurance brokers do, how insurance brokers make money (by you and/or the insurer?), and how to recognize a good broker so that you can get a policy tailored to your needs (instead of a broker’s commission).

What do life insurance brokers do?

Insurance brokers sell and package life insurance, life benefits, and property-related products. These may include life insurance products (such as term and whole life insurance) and life benefit products (such as disability, critical illness, long-term care, individual, health and dental insurance). Life insurance brokers may also sell non-life products such as segregated funds AND pensions.

In addition to selling these products, brokers are required to follow industry guidelines set by provincial insurance advisors and are expected to follow guidelines from industry organizations such as the Canadian Life and Health Insurance Association (CLHIA).. Brokers have a professional obligation to constantly keep up with the industry. “Insurance brokers continually improve their skills through training and education,” he says Gurbinder Amar, director of business development at IDC Worldsource Insurance Network Inc. in Vancouver, which trains insurance brokers. “T“he is obligated not only to maintain his licenses, but also to maintain any designations he has that are related to the industry.” This training may include product and concept training, analysis, sales skills, and more.

How do brokers determine the life insurance products they offer?

You know how a travel agent has access to different hotels and airlines. The same applies to insurance brokers and insurers. Their questions are aimed at understanding your needs; based on the answers you provide, they will adjust your policy. Your broker is required to use analytical tools – such as “fact mining” and “needs analysis” – in collaboration with you to find the best policies and insurance products, says Amar. Essentially, what is discovered through these processes will help the broker determine the best options and possible alternatives for the client.

Good, Bad and Neutral: Explaining the Broker/Supplier Relationship

The question on the tip of every skeptic’s tongue: Are brokers in the insurer’s pocket? Short answer: no.

“An insurance broker can sell products of insurers with which he has contracts,” explains Amar. “They are compensated for the products sold, and the amount of compensation is usually very similar depending on the type of product sold by different insurers.” He puts it this way: “If a futures product is sold through Company X, the broker will receive approximately the same compensation for the futures product sold through Company Y.”

Amar says this helps prevent bias against any insurer. “It would be similar to a mortgage broker. They have the ability to sell mortgages and other lending products from a variety of lenders and provide customers with the best solutions. The remuneration would be similar depending on the product sold by different lenders.

But what if the best product is not with one of the broker’s partners? “If an insurance broker feels that there is a more suitable product for his client, he can enter into contracts with other insurers through his managing agency (MGA),” says Amar. “MGAs typically have access to all providers operating in the brokerage environment.”

To ensure that brokers act in the best interests of the client, the Canadian Council of Insurance Regulators and the Canadian Insurance Regulatory Organizations have created Guidelines for conducting insurance business and treating customers fairlywhich brokers should follow.

How life insurance brokers earn

How much do life insurance brokers earn? There is no clear answer. As with most professions, it varies depending on many factors. Firstly, insurance brokers are self-employed, so they do not receive a standard remuneration, and their income depends on the size of their business – even in the case of a brokerage office. “In the case of a brokerage, it’s only commission, so you don’t see a salary or remuneration based on seniority,” says Amar. “That said, there are semi-captive agencies – where you can usually only sell that agency’s products – that offer a small base salary or some upfront salary, but that’s not the case on the broker side.” As for commission rates, they vary from product to product, so it depends on what they’re selling. For investment products, the commission can range from 0% to 5%, at the top of the deposit. For life products and life benefits, the first year commission (FYC) typically ranges from 40% to 60% of the annual premium, depending on the type of product.

So when does the company pay the broker and when does the client pay the broker? The customer does not pay directly; rather, the insurer does this once the policy has been medically and financially secured and the policyholder has paid the first premium, Amar says. “At this point, the insurer will pay the advisor compensation.”

Generally speaking, a whole life policy pays the broker significantly more than a term policy. To see what the commission looks like, LSM Insurance has some great numbers. (For the full chart, including 100 and universal commission rates, please visit lsminsurance.ca.)

“The bonus, which in this case translates into 120%, may vary, in some cases it may even be 0%,“ says Amar. “This bonus is usually something negotiated based on the amount of production the advisor has done, the size of his book of business (and so on).“ He adds that the bonus can have a wide range if applicable.

(How much does life insurance cost in Canada? We’ve broken it down.)

Good offer vs. good policy: how to spot the difference

According to Amar, the best way for you, the customer, to determine this is to ask yourself, “Does this life insurance meet my needs and desires?” If the answer is yes, then the insurance broker has done his job.

And if the broker follows protocols and communicates with you effectively, that’s also a good sign. “There may be multiple solutions to a particular need or scenario, and the broker will provide options that will address them in different ways and show the pros and cons of those choices.”

Do you need an insurance broker?

You can buy life insurance directly from an insurer, but why not look elsewhere? “I highly recommend using a broker because you are not limited to one product provider,” says Amar. “However, I truly believe that meeting a need for financial security for you, your family, or your business is a priority, regardless of the label or source.”

When shopping, also make sure the rates are from a licensed supplier. However, receiving bids from too many vendors can raise a red flag. It’s similar to this affects your creditworthiness when applying for more than one credit card at the same time. But Amar does not recommend avoiding comparison shopping to get the best deal, as well as better ratings under certain conditions. (Our guide to finding the best life insurance in Canada.)

Tips to ensure you’re treated fairly

Look at the whole package, so to speak. “Insurance brokers typically have access to (…) prices for a range of products from different suppliers,” says Amar. “If possible, a client can always request a survey or ask the broker to share options with multiple insurers.”

However, Amar warns that it’s not just costs that need to be taken into account. “Cost should not always be a factor as there may be a valid reason to choose a slightly higher priced insurer and your insurance broker can provide you with specific justification for this. And like any other industry, it’s always worth getting a second opinion.”

Signs of a good life insurance broker

So how do you know when you’ve found a gem? Selling insurance isn’t the only thing they care about. “One of my mentors in the industry once said that you should show a customer how much you care before you show them how much you know,” says Amar. Unlike banks and financial institutions, insurance brokers work on a relationship model rather than a transactional model – clients can ultimately establish long-term relationships. “A good insurance broker will take the time and energy to understand your needs and desires and find solutions to help solve these problems.”