Definition: Insurance brokers play a significant role in the financial industry by representing insurance companies to policyholders, helping them understand their coverage options, negotiating rates, and providing guidance on risk management strategies. They are paid based on sales volume and commission for each policy they represent. In insurance terms, how insurance brokers make money is often referred to as "brokerage" or "commission." This includes both direct broker commissions and indirect broker commissions. Direct commission is the commission that the broker earns from a sale of an individual policy, while indirect commission is based on a percentage of the total premium paid by an insured. Direct Commission - A broker pays a fixed fee for every new business they refer to a specific insurance company or group to purchase their policies. For example, a broker may charge $100-$300 per referral and this amount is known as "fee structure." Indirect Commission - Another type of commission paid by the broker. This is based on an assessment of the total premium paid for a policy. The broker receives the premium minus any commissions received from direct sales (commission-based) or indirect sales (bonus-based). For example, if a broker referred 10 customers and each customer purchased $500 worth of policies, they would receive a commission of $450. Brokerage is an essential part of the insurance industry, as it helps to ensure that policyholders are receiving premium rates from the companies who offer them coverage, which can increase their return on investment. To be considered for brokerage commissions, brokers must meet certain criteria such as having a history of successful sales and a strong track record. The compensation structure can vary depending on the size and type of insurance company, the broker's location, and other factors.

how insurance brokers make money