There are two groups of insurance salespeople: those who sell life insurance and those who sell other types of insurance (i.e., policies covering accidents and sickness, property loss or damage, and liability for financial or bodily damage to a third person). Many accident insurance policies contain a provision for the insurance company to pay cash to beneficiaries upon death of the policyholders. The primary purpose of the policy is to provide financial security in case of accidents. Some insurance salespeople also sell surety bonds that protect the holder against loss resulting from the dishonest employees in positions of trust, transportation, inland marine, and marine policies.

Life insurance agents usually specialize in one of the three main types of life insurance: ordinary, industrial, or group. Ordinary life insurance refers to policies with face values of $1,000 or more with premiums payable to the company's branch, agency, or home office. Industrial insurance is sells in amounts ranging from $100 to $1,000, and the agents collect the premiums. In group insurance, a single policy covers many people, such as the employees of a particular company, and an individual representing the group makes the premium payments to the company.

Generally, life insurance agents represent only one company. The earnings of ordinary and group insurance salespeople consist of commissions on insurance they sell. Industrial agents generally have a fixed income based on the number of policyholders in their assigned areas, and commissions on any additional policies they sell.

Some companies sell only one or two types of insurance, while others sell several or all types. They may use a variety of methods or systems to sell their policies such as:

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  advertise and sell their policies from the home office through mail;

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  employ industrial agents;

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  employ insurance brokers; or

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  use door-to-door salespeople.

The two most popular systems, especially with the largest companies, appear to be the establishment of branch offices and general agencies. Some companies use only one of these systems, some use several of them, and others use all of them. The following subsections describe the conditions in which different types of insurance salespeople work. The titles used in this section are those generally used in the industry. They vary somewhat from company to company and are not too significant in themselves. The important issue in determining the employee or independent contractor status of a salesperson is the working conditions, regardless of job title.

While life insurance salespeople may not be common law employees, if they meet the conditions under the following tests, they are employees for Social Security and Medicare purposes when:

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  the service contract states or implies that the salesperson must perform substantially all of the services personally;

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  the salesperson performs the services on a continuing basis for the same payer; and

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  the salesperson does not have a substantial investment in the equipment and property used to perform the services (other than an investment in transportation facilities).

If full-time life insurance salespeople work primarily for one life insurance company, they are employees. Incidental sales of other types of insurance, such as surplus-life insurance, do not affect this requirement. Conversely, if salespeople must work substantially to sell applications for insurance contracts other than life insurance and annuity contracts, such as health and accident, fire, or automobile insurance, they do not meet this requirement. In addition, the employment contract between the company and the full-time salesperson must reflect the intent of full-time work. If the contract intends that the salesperson engage in full-time activity, the salesperson may work regularly a few hours a day and still qualify as full-time.

Many insurance companies establish branch offices in principal cities or other strategic locations. Branch managers operate these offices, which are sections of the home office. The primary purpose of the branch manager is to:

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  supervise the administrative help;

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  aid the soliciting agents;

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  recruit and train new agents for the company;

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  service policies; and

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  perform other duties, as the home office deems necessary, to secure and maintain a profitable insurance business in the assigned territory.

The company owns or leases the branch office and pays all expenses connected with its operations, such as heat, light, equipment costs, and salaries of the administrative or branch office employees. The manager solicits insurance, in addition to other duties. The manager's pay consists of commissions on sold policies and a monthly salary for managing duties. The manager must keep the branch office open during the hours the company specifies, they cannot handle the business of any other company, or work for anyone else.

The company may shift the manager from one branch office to another, enlarge or reduce the size of the territory, or terminate the services on short notice. It has the right to appoint auxiliary or additional agents to the territory. The manager usually receives a paid vacation each year, but must obtain permission for any other absence from the branch office. Many branch offices are collection agencies. The branch office cashier handles all money collected. The manager is responsible for keeping proper accounts, remitting the money to the home office, and purchasing and keeping in force a security bond of sufficient value to protect the company in case of dishonesty.

The manager is a supervisor for the company and is subject to considerable control and direction in how to perform the job duties. Generally, the manager, the cashier, and the branch office workers are all employees of the company.

Sometimes, the territory assigned to a branch office may be so large or underdeveloped, or the duties of the manager increased to such an extent, that the company provides the manager with one or more assistants. These assistants are the assistant managers and field managers. Like the manager, their salary and commissions are the result of insurance policies they sell. Their work consists principally of finding and training new agents for the company. They work according to company instructions and the manager supervises them. Their work conditions are very similar to those of the manager and, like the manager, they are employees of the company.

Many companies operate under the general agency system. Under that system, an insurance company appoints well-qualified individuals known as general agents, to develop and maintain their own insurance businesses in assigned territories. Their contracts give them the privilege to sell the company's insurance policies, appoint and train sales agents to help them, and to develop their territories with organizations they build. They are paid first-year and renewal commissions on policies they sell and an over-writing commission on each policy their sub-agents sell. Some general agents contract to sell only one type of insurance, while others contract to sell various types. Some of them also contract to collect renewal commissions and receive a percentage of the collections for such work. Most of them, however, collect only the initial premiums.

Several factors in the general agent's relationship with the company appear to restrict the activities considerably. Usually, the purpose of these factors or restrictions is to guarantee that the agency operates in line with established industry practices and ethical standards, to ensure that the general agent does not misrepresent the company, to protect the public from unscrupulous salespeople, and to ensure that the general agent does not violate the various State and local laws. The factors are not indicative of an employer-employee relationship. The company usually sets general rules about the underwriting principles that govern how they accept the policy applications, but do not control the agent's method to operate their agency.

The average general agent owns or rents the branch office and pays all business expenses. They usually hire clerical workers and spend most of their work time supervising branch office staff, reviewing agents' activity records, maintaining required records of monies collected, and devising various means of increasing business. Many general agents do not sell insurance themselves, but depend on the over-writing commissions of the agents they select and train for their livelihood. Nearly all general agents are subject to rules about handling the money, and keeping the accounting records and reports. They hold themselves out to the public as general agents and the companies usually pre-review their advertisements. They must use the supplied application forms and submit all applications to the home offices to approve or reject. They must abide by the rate books their employers provide. They cannot assign their agency interests.

In most cases, the general agents are independent business people. They usually:

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  invest substantially in the branch office, equipment, and other facilities;

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  hire and direct their own staff;

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  pay transportation and business expenses;

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  receive payment that is not fixed, but depends on the amount of energy, skill, and ingenuity they apply to manage their agency;

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  work when, where, how, and if they please; and,

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  can follow, or ignore the company’s suggestions about the work.

The prior paragraphs discuss general agents as individuals, since questions of coverage usually arise in the case of individual agents. Many general agents, however, are partnerships or corporations.

Companies sometimes appoint branch managers or general agents as district managers (because of their demonstrated selling abilities). These district managers develop insurance businesses in new or underdeveloped districts. General agents sometimes appoint district managers to concentrate on certain areas within the agent's territory. Companies appoint others to operate in new territories. District managers hold contracts to sell one or more types of insurance and to appoint sub-agents, or local agents for the companies.

Generally, district managers are independent contractors when they:

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  operate under circumstances similar to, but on a smaller scale, than general agents;

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  have offices in their homes, or use office space in the branch manager's or general agent's office. In territories where there are no branch or agency offices, they sometimes receive an office allowance in the form of increased commission rates. Such allowances, however, are not enough to cover the costs of offices they rent;

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  are not given exclusive franchises covering particular territories (sometimes a number of them are appointed to the same area);

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  receive first-year and renewal commissions on policies they sell and an over-writing commission on each policy sold by the sub-agents they appoint. In many cases, the percentage of commissions is based on the amount of new business produced annually in their individual districts;

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  must operate according to established practices and the industry’s ethical standards;

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  are masters of their own time;

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  employ their own methods to build their insurance businesses; and

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  engage in other business activities (with the company’s knowledge).

Insurance brokers are individuals, partnerships, or corporations engaged in the general insurance business. They do not bind themselves to represent a company exclusively, or to devote any time to a company's business. As a rule, they arrange with a number of companies that enable them to place various lines of coverage, such as casualty, liability, life, accident, fire, etc. Generally, they have no employment contract with the insurance companies, except for their commission in each individual case. They receive first-year and renewal commissions on the policies they sell. Unlike soliciting or general agents who write the policies for the companies they represent, brokers represent their clients by seeking the policies that best meet the client's needs. Many brokers submit their business through general agents and handle each case on a single-case basis that known as “over-the-counter” business.

Generally, insurance brokers are independent contractors when they:

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  have their own offices;

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  select, train, direct, and pay helpers;

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  have substantial investments;

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  pay their own expenses;

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  work when, where, how, and if they please; and

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  depend on the amount of energy, time, and skill they apply to their work to manage their assistants and investments.

Industrial agents usually work directly out of a company's home office, a branch office, or a general agent's office. The office furnishes desk space, telephone service, clerical help when needed, and all necessary books, forms, and papers. After training, the office assigns a territory known as a “debit” where they must collect all weekly or monthly premiums due from policyholders’ homes. They also solicit applications for industrial and sometimes ordinary insurance. Industrial agents carry an agent's collection book that contains a list of the names of the policyholders in their territory, the amount of insurance each one carries, and the amount of the weekly or monthly premiums. They must note in the proper space in their book as they collect the premiums on a particular policy. Sometimes they can work out their own schedule from the records in the book. The company usually requires industrial agents to report personally to the office to deliver applications and to submit all money collected.

Industrial agents receive a salary plus commissions on new business written, or a percentage of the premiums collected and commissions on new business written. Regardless of the payment method, they are generally subject to considerable direction and control by the companies they work for and they are employees. They cannot work for others or hire helpers. Although many of them can work out their own itineraries, they must contact all policyholders periodically and keep records of all transactions. Many agents must report to their offices each day and submit weekly reports. They must comply with detailed instructions on the insurance writing, collecting and recording insurance premiums, the payment of claims and dividends, and the handling of such matters as lapses, revivals, and transfers of policies. Many industrial agents must write a minimum amount of new business periodically to keep their jobs. The company may terminate their employment on short notice and the agents lose their rights in the business they have written.

Soliciting insurance agents are generally independent contractors when they:

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  contract with insurance companies, branch managers, or general agents to solicit applications for insurance and to collect first-year premiums on the policies they sell;

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  canvass on a door-to-door basis within their assigned territories, using their own means and methods; and

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  receive commissions on the initial premiums they collect, and renewal commissions on the policies they sell that remain in force. The agent is paid renewal commissions for periods ranging from about six to 10 years and they are payable even when the agent no longer sells insurance for the company.

Soliciting agents must comply only with their company’s general rules and regulations. These rules and regulations involve handling the companies’ business; that is, the privileges and limitations of the companies' insurance contracts and what to do to secure applications for such contracts. They do not relate to the agents' work hours and the agents are free to exercise their own judgment about the people to whom they try to sell insurance and the time and manner of selling. The agents must comply with the companies’ underwriting rules regarding the acceptance of risks, types of contracts, premium rates, physical examinations of applicants, etc. Soliciting agents cannot violate the laws on rebate and misrepresentation of policies and dividends, etc. The rules and regulations outline to the agents the broad general principles to follow soliciting business, accepting first premiums, and delivering policies. The rules and regulations define the agents' authority limits but do not control their time or methods to do business.

Most agents must spend all of their work time selling for their companies. They cannot work for competing companies, except to place with them business which their own companies will not accept. This restraint does not fix the agents’ work hours. Although the work contracts are terminable on short notice, usually 30 days, this condition works to the mutual advantage of all parties concerned.

Soliciting agents usually operate independently, except for the few general restrictions just mentioned. They choose their own work hours and pay their own business expenses, such as transportation, license fees, advertising, and entertainment costs. Occasionally, they have offices in their homes, but usually they are given office space in the companies' or general agents' offices. They solicit when and from whom they choose and develop their own soliciting methods. They build their own clienteles and have personal relationships with their clients, independent of the companies. The clients consult them and rely upon their advice on insurance matters. They establish reputations for themselves, but not for their companies. They do not employ assistants or substitutes since it is impractical. Their livelihoods depend on the amount of energy, time, and ingenuity they apply to their work.

The prior listed conditions apply, generally, to full-time, part-time, and surplus-line agents, as well as retired agents who sell occasionally. In nearly all cases, the company's only interest is to sell insurance in a lawful way. How the agent sells the insurance is of no interest to the company. The company gives the agents no particular work to do, but merely gives them opportunities to work.

Fire and casualty salespeople who solicit applications principally for fire and casualty insurance are sometimes subject to detailed systematic control by the companies they represent in making sales and are employees. Generally, such salespeople are owners and operate their own insurance businesses. They handle such insurance for a number of companies, hold themselves out to the public as brokers, and generally select those policies that best suit their clients' needs. Actually, they represent their clients instead of the insurance companies.

Usually, fire and casualty insurance salespeople:

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  have their own offices, for which they pay the rent;

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  own their office equipment;

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  hire and pay all of their employees;

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  operate entirely as independent contractors without supervision from any insurance company;

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  pay all business expenses;

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  are free to solicit when, how, if, and from whom they please;

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  receive no drawing accounts;

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  are compensated by a given percentage of the insurance business they and their solicitors write;

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  have no renewal commissions in their insurance line because when each policy expires, if the insurance is renewed, it terminates the contract and they write a new policy;

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  have exclusive rights to the business they write (they may attempt to renew or rewrite a terminated policy for the company, or they may place the business with another company);

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  exercise full control over the business they acquire;

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  determine in what company or companies to place the risks after securing business from their clients;

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  are not held responsible if the policyholders fail to pay premiums on time, but in order to obtain their commissions, they must collect the premiums;

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  are not required to produce certain volumes of business; and

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  may terminate their relationship at any time.

As independent business people, their livelihoods and success depend on the reputations they establish with the public, the amount of time, energy and ingenuity they apply to their work, and the amount of skill that they use to manage their investments and assistants. Many of them combine their insurance businesses with other activities, such as automobile and real estate agencies, farming, etc.

The prior sections outline the usual work conditions in each occupational category, but they are not the only conditions that exist. Some general agents and soliciting agents work under such conditions where there is an employer-employee relationship. In addition, some fire and casualty insurance salespeople are employees.

Except for fire and casualty insurance salespeople and other brokers, certain factors exist in insurance cases. The salespeople must confine themselves to specific territories, refrain from selling for competitors, and they must collect and account for first-year premiums and, abide by their company’s general rules and regulations. Since these factors exist in the case of both independent contractors and employer-employee relationships, they are not conclusive in themselves.

The principal factors that indicate an employment relationship exists are:

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  the worker must have a minimum share of sales to maintain the relationship;

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  a territory must be canvassed at specific intervals;

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  leads must be followed and they must report daily activities and results;

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  the worker must perform duties in addition to selling activities;

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  the worker cannot have any business expenses or investments;

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  the worker has no stake in renewal commissions after termination;

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  the worker has set work hours; and

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  the employer pays the worker a salary, or a salary plus commissions.

After 1950, if life insurance salespeople meet the requirements for coverage under the occupational test, services performed by life insurance salespeople who do not meet the common-law control test are covered under Social Security. See RS 02101.300 and RS 02101.355.

Evaluate each individual case to determine if a salesperson is an employee under the usual common-law rules. If the salesperson is not an employee under the common law rules, then a traveling or city salesperson may be an employee for Social Security and Medicare purposes, if the traveling or city salesperson meets all of the following eight elements of the statutory employee test:

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  agrees to do substantially all of the work personally;

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  has no substantial investment in the facilities used to do the work, other than in facilities for transportation;

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  is not an employee under common law rules;

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  maintains a continuing relationship with the person or company for which they work;

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  sells merchandise for resale, or supplies for use in the customer’s business;

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  sells on behalf of, and turns their orders over to, the person or company for which they work;

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  sells to wholesalers, retailers, contractors, or operators of hotels, restaurants, or similar establishments; and

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  works full time for one person or company except for sideline sales.

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  IRS Publication 15-A, Employer’s Supplemental Tax Guide at http://www.irs.gov/pub/irs-pdf/p15a.pdf

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  IRS Publication 15, (Circular E), Employer's Tax Guide at http://www.irs.gov/pub/irs-pdf/p15.pdf

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  Social Security Handbook, Section 828, Full Time Life Insurance Salespersons