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.