An insurance agent is licensed by your state to sell insurance and annuities, and is usually paid a commission by the insurer whose policy you buy. A fee-only financial advisor is paid only by you, a median $300 an hour or $2,000 for a one-time plan, and earns nothing from whether you buy a policy. For a simple purchase you already know you need, like term life or disability cover, an agent is the person to buy from. For deciding whether to buy, how much, and what kind, especially an annuity or a permanent life policy, ask someone who isn’t paid by the sale first.
The short version
| Insurance agent | Fee-only financial advisor | |
|---|---|---|
| Licensed or registered with | Your state insurance department | The SEC, or the state securities regulator for smaller firms |
| What they can do | Sell insurance and annuities from the insurers they’re appointed with | Advise on your whole finances, including whether you need insurance |
| Paid by | Usually the insurer, through a commission | Only you: hourly, per plan, flat yearly fee or a percentage of assets |
| Standard of conduct | For annuities, a best-interest rule that “does not create a fiduciary obligation” | Fiduciary duty for the whole relationship |
| Products they compare | Ones they’re licensed and appointed to sell | Any product, from any company |
| Ongoing monitoring | Not required by the annuity rule | Part of the duty in an ongoing relationship |
| Where to check | Your state insurance department | adviserinfo.sec.gov |
One person can be both. Many agents call themselves financial advisors, and the US rule that limits who can use the title applies to brokers, not insurance agents. Our guide to financial planner vs financial advisor explains what each title does and doesn’t mean.
What the rules actually require of an agent
States regulate annuity sales, and many base their rules on a model written by the National Association of Insurance Commissioners (NAIC), revised in 2020. Under it, an agent recommending an annuity must act in your best interest “without placing the producer’s or the insurer’s financial interest ahead of the consumer’s interest.” It’s a meaningful rule. Read the fine print, though:
- It’s not a fiduciary duty. The rule says its requirements “do not create a fiduciary obligation or relationship.”
- It only covers what the agent sells. The agent has to consider products “the producer is authorized and licensed to recommend or sell,” and the rule says this “does not require analysis or consideration of any products outside the authority and license of the producer.”
- Cheaper isn’t required. The rule says it doesn’t mean “the annuity with the lowest one-time or multiple occurrence compensation structure shall necessarily be recommended.”
- There’s no duty to keep watching. The agent has no ongoing monitoring obligation under the rule, unless a separate advisory or planning agreement creates one.
- Commissions don’t count as a conflict. The rule’s definition of a material conflict of interest “does not include cash compensation.”
The NAIC rule is a model, and each state adopts its own version. It also covers annuities only. For life insurance, ask your state insurance department which standard applies.
An investment adviser’s duty is wider. The SEC describes it as a duty of care and loyalty that covers the whole relationship, and in an ongoing relationship it includes monitoring “relatively extensive as is consistent with the nature of the relationship.” Our guide to whether your advisor is a fiduciary covers that standard in detail.
What each costs
An agent doesn’t send you a bill. The commission comes from the insurer and is built into the price of the policy or the terms of the annuity. Commission rates aren’t published, and they vary by product and company. Under the NAIC annuity rule, the agent must tell you up front whether they’re paid by commission or by fee, and, if you ask, give “a reasonable estimate of the amount of cash compensation,” which may be a range. Ask for it in writing.
Many annuities and permanent life policies also carry a surrender charge if you leave in the early years. That’s the cost to weigh: not the commission itself, but whether you’d be locked into something you didn’t need.
A fee-only advisor’s price is on the invoice. These are the medians among US fee-only firms that publish prices:
US medians from prices firms publish on their own websites
Source: Wellspent fee report
Reviewing one policy or one annuity offer usually fits in a few hours. A one-time plan makes more sense if the insurance question is part of a bigger one, such as a retirement income plan. See hourly planner costs and one-time plan costs.
When an insurance agent is the better choice
- You know what you need. A 20-year term life policy to cover a mortgage and young children, disability cover your employer doesn’t offer, a home or auto policy. An agent shops it, handles the application and helps with underwriting.
- You want help at claim time. A good agent knows the insurer and can push a claim along.
- You want several quotes quickly. Under the NAIC rule, an annuity agent must tell you whether they sell for one insurer, two or more, or mainly one. An agent appointed with many insurers can compare more of the market.
- A fee-only advisor already told you what to buy. Then the agent is simply where you buy it.
When a fee-only advisor is the better choice
- Someone has suggested an annuity for your retirement savings, or moving a 401(k) into one. That’s a large, long-term decision, and the advice and the sale shouldn’t come from the same paycheck.
- You’re being offered permanent life insurance (whole, universal or indexed) as an investment or a tax strategy. Ask whether term cover plus investing the difference would do the job, from someone who earns nothing either way.
- You want to replace an existing policy or annuity. Swapping contracts can restart a surrender period and pay a new commission. The NAIC rule asks agents to look harder when you’ve had another exchange in the past 60 months.
- Insurance is one piece of a bigger plan. Retirement income, estate planning and taxes all touch it. See retirement planning and estate planning in the public graph.
The common pattern is to use both: a fee-only advisor to decide what you need, an agent to buy it. Some fee-only advisors also recommend no-commission policies and annuities, and earn nothing on them.
How to check who you’re talking to
- Ask what licenses they hold. Insurance only? A securities license too? Registration as an investment adviser? Each one comes with its own regulator and its own way of being paid.
- Check the insurance license. The NAIC’s insurance departments page links to every state’s department, where you can search for an agent and file a complaint.
- Check the securities side. Search the person on the SEC’s adviser search and FINRA BrokerCheck. A broker registration means they can also earn commissions on investments. Our guide to checking a financial advisor walks through both.
- For an annuity, ask for the disclosure form. The NAIC model includes a one-page “Insurance Agent (Producer) Disclosure for Annuities.” Then ask for the compensation estimate the rule entitles you to.
- For an advisor, confirm fee-only. A commission-based or fee-based advisor can still sell insurance. Our guide to telling whether an advisor is fee-only shows where it appears in their filings, and fee-only vs fee-based vs commission explains why it matters.
Questions to ask before you buy
- Are you paid by the insurer, by me, or both? Roughly how much on this policy?
- How many insurers can you sell for?
- What does it cost me to leave in year one, year three and year seven?
- What would you recommend if you weren’t paid on the sale?
- Would you put this recommendation in writing, with the reasons?
If the answers come easily, you’re probably in good hands. If they don’t, pay a fee-only planner for an hour before you sign. For annuities specifically, read our glossary entries on annuities and surrender charges first.