What is first-year commission?
First-year commission is the percentage a carrier pays on the first twelve months of premium, and it is far larger than what follows — often most or all of the annual premium on life products. It is the number advances are calculated from and chargebacks are reclaimed against.
Insurance compensation is heavily front-loaded by design: the carrier pays most of what a policy will ever pay a producer in its first year, then far less on renewals. That structure is why persistency matters so much, and why a lapse early costs so much more than a lapse later.
The rate varies widely by product line. Term and whole life pay high first-year percentages; annuities and health products work differently and are not comparable on the same scale.
| Annualized premium | $1,200 |
|---|---|
| First-year commission at 90% | $1,080 |
| Renewal, years 2-10, at 5% | $60/yr |
| Share of 10-year total paid in year 1 | ~70% |
Illustrative. Rates vary enormously by carrier and product line.