Arrowsmlft.gif (338 bytes)Previous Table of Contents NextArrowsmrt.gif (337 bytes)

RELATIONSHIP BETWEEN AGENT AND COMPANY

At one time it was common for the agent to contract with the general agent or manager. Today, however, the common practice is for the agent to contract with the company. The contract describes the authority, scope, and limits of the agent�s job, and it determines the agent�s legal relationship with the company, the restrictions concerning representation of other companies, and the compensation arrangements.

The contract�s compensation provision is frequently handled by attaching a commission schedule or agreement. This attachment facilitates modifications of the commission provisions for new types of policies, changes in rates and cash value structures, and other changes in marketing strategies, such as raising or lowering commissions on certain products to encourage or discourage their sale.

Commission scales of companies that do business in the state of New York are limited by the 1997 revision of Sec. 4228 of the New York State Insurance Law. Although the commission scales of companies vary, there is a greater degree of uniformity among companies doing business in New York than among the commission scales of companies that are not limited by expense limitation laws.

For companies licensed in New York, the typical agent�s commission rate prior to 1998 for ordinary life insurance was 55 percent of premium for the first year, followed by 5 percent of premium for the next 9 years, after which a small service fee was paid for a further specified period. The 1997 revision increased the permissible renewal commissions to 22%, 20%, and 18% respectively for years 2, 3 and 4. This is intended to give more flexibility in renewal commissions payable to agents representing New York life insurers. The commission rate for agents selling for companies not licensed in New York is usually higher�up to twice as high in some cases. But the variety of commission rates that exist, which depend on the product, age of the insured, location of the sale, condition of the sale, and marketing strategy of the company, means that the figures above are quoted only to provide a very broad guideline as to how commissions are structured.

In states other than New York, some companies pay renewal commissions only during the first few policy years (3, 4, 5, 6), and the rate often decreases each year rather than staying at the same percentage. Newly licensed agents, of course, have no immediate commission income. They are paid a specified amount until they can earn enough to survive on commissions, reach a designated time limit, or are terminated. Usually the amount paid is on the condition that the recruit fulfill specific minimum requirements in regard to such things as hours worked, interviews held, and training sessions completed. A validation schedule outlines the sales requirements that an agent must meet in order to continue being subsidized.

Agents, in certain situations or for particular reasons, are paid noncommission compensation. For most agents, this noncommission compensation is in the form of such programs as group life and health insurance, pension funding, and similar fringe benefits. When home-service agents collect premiums at the policyowner�s home or office, they are paid for performing this function.

Arrowsmlft.gif (338 bytes)Previous TopArrowsm.gif (337 bytes) NextArrowsmrt.gif (337 bytes)