To understand the commission structure, first it is good to know a little about the different types of life insurance. Term life insurance and cash-value life insurance policies (whole and universal life) are two of the basic types of life insurance policies. The main difference between these types is that term life insurance lasts for a certain term, such as 10, 20, or 30 years and whole life insurance lasts your entire life often with a cash value building up with it (your money is invested to build the cash value but the investments are not profitable and there are usually many hidden fees). Yes, to most the second option sounds much better but it is much more expensive and for this reason and the fact that most people don't need life insurance when they are elderly, for most people term life insurance is sufficient.
So, depending on the type of insurance you choose, the commissions can vary. Although every company is different, on average life insurance agents make about a 30-70% commission on term life insurance and around 90-105% commission on whole life products. Keep in mind that this is the first year commission on the premium and subsequent year commissions are much lower with an average of 6% per year for whole life products and 4% per year on term life insurance products. Some life insurance agents may also get a one time fee commission on top of the above commission just for starting a new life insurance policy.
Let's take a look at a real life example: Beth is married, 33, a non-smoker, and would like to purchase life insurance since she has 2 children. She has received quotes for a term and whole life insurance policy with both of them valued at $250,000. The term insurance policy is for 30 years and has a premium of $26.00 per month. Her whole life premium quote is $160 per month. So, the insurance agent would make $7.80-$13.00 per month for the first year of the term insurance and about $1.04 per month for the remaining 29 years. On the whole life policy the agent would make $144-$152 per month for the first year of the policy and about $9.60 per month for the remainder of the policy.
It is easy to see why insurance agents would rather sell whole life policies instead of term life policies. Since Beth only needs life insurance while her children are dependent on her, then 30 years is more than enough time for a life insurance policy. If Beth still wanted a usable cash value at the end of her insurance term, it would still be better for her to purchase the term life insurance policy and invest in mutual funds any remaining amount she would have paid for a whole life policy. Every situation is different and every life insurance company is different so it is good to do the research and talk with your life insurance agent about what is best for your situation.