First Year Commission (FYC)
First Year Commission (FYC) is the higher commission rate you earn when you sell a brand new policy, compensating you for all the work required to find the client, complete the application, and get the policy issued. Think of it as a 'thank you bonus' for bringing in new business rather than just servicing existing clients.
Why does this matter? FYC rates are typically much higher than renewal commissions because acquiring new clients requires significantly more effort than maintaining existing ones. Insurance companies recognize that agents need to be rewarded upfront for the prospecting, presentations, and paperwork involved in new sales.
How it works: When you sell a new policy, you receive a percentage of the first year's premium as your commission - often 50-100% of the annual premium for life insurance, or 10-20% for property and casualty policies. In subsequent years, if the policy renews, you'll receive much smaller renewal commissions (typically 2-10% of the premium).
You'll encounter FYC across all insurance types, but it's especially significant in life insurance and annuities where the first-year rates can be substantial. The exact FYC rate depends on the product type, carrier, and your contract level with the agency.
The biggest mistake new agents make is focusing only on FYC and neglecting renewal income, which provides more stable long-term cash flow as your book of business grows.
Example:
David sells a $100,000 whole life insurance policy with an annual premium of $3,000. His contract pays 90% FYC, so he receives $2,700 for this sale in the first year. When the policy renews in year two, he receives only 5% of the $3,000 premium ($150) as renewal commission. While the first-year payout is substantial, David knows that building a large book of renewable business will provide steady income over time. After five years, his renewal income from hundreds of policies provides a reliable monthly income even during slow sales months.
How Earn Base Helps
Clearly distinguishes between FYC and renewal commissions, tracking each type separately and providing accurate projections of your renewal income growth over time.