Guides
Life insurance sold through multilevel marketing: what to know
How recruiting-based life insurance sales organizations work, what the FTC says about MLMs and pyramid schemes, and what to ask as a customer or recruit.
Some life insurance is sold through organizations in which agents earn money both from their own sales and from the sales of agents they recruit and train. That is a multilevel structure, and it is legal where the people paid are licensed and the pay is tied to real insurance sales. It matters to two audiences: a customer should know the person selling is paid by commission, as all agents are, and anyone invited to "join the business" should know how little of the income may come from selling to the public.
What a multilevel structure looks like
In a typical agency, a producer sells policies and earns a commission from the insurer. In a multilevel sales organization, agents are also invited to recruit and train others. When a recruit sells a policy, the recruiter and the people above them in the "downline" chain earn a share, often called an override. Titles and ranks reflect how large a team a person leads.
Insurance differs from many MLM products in one way: only a licensed person can sell, solicit or negotiate insurance, and under the NAIC's Producer Licensing Model Act (#218) an insurer may not pay a commission to a person who is required to be licensed and is not. A recruit therefore has to pass a state exam and license before selling, and the license can be checked on your state's database; see how to check that an insurance agent is licensed. Recruiting a friend is not selling insurance, and the recruiter's override is paid because the recruit, once licensed, sells policies.
Labels vary, and a company is classified not by its label but by how people are paid.
Legal structure versus pyramid scheme
An MLM is not automatically illegal. The Federal Trade Commission draws the line on how money is actually earned. According to the FTC's consumer guidance, a lawful MLM pays participants based on sales to retail customers, without a need to recruit new distributors, whereas in a pyramid scheme income comes primarily from recruiting. The FTC's staff business guidance, dated April 2024, applies the Koscot standard: a pyramid scheme involves payment for the right to sell a product and the right to receive rewards for recruiting others that are unrelated to product sales to end users. The FTC adds that there is no percentage-based test and that it looks at how the program operates in practice.
The FTC also says earnings claims must reflect what typical participants earn after expenses and be supported by reliable evidence, and that a "results not typical" disclaimer alone is not enough. The Business Opportunity Rule may apply to some MLMs depending on their structure, requiring earnings claim statements before enrollment.
Insurance adds state oversight on top: state insurance departments regulate agent conduct, sales practices and replacement of policies, and securities licensing (FINRA and the SEC) applies if the representatives also sell investments.
What the publicly filed numbers show for one company
Primerica, Inc. is publicly traded and describes its distribution model in its annual report to the SEC. According to the 2025 annual report, the company had 151,524 life-licensed representatives at December 31, 2025, who are independent contractors rather than employees, most of whom begin part-time. It reported new policies averaging 0.18 per life-licensed representative per month in 2025, and it says many recruits never become licensed. Commissions are generally advanced when an application is submitted, and part of each commission goes to the representatives above the seller in the sales organization. The company says leaders who build teams and hold both insurance and securities licenses can become regional vice presidents. Details on the company and its products are on its Primerica profile. These are facts from the company's own filing, not a judgment; they illustrate how averages in any large part-time field force can differ from the experience of top performers.
Comparison: three ways to buy and sell
| Career captive agent | Independent agent or broker | Recruiting-based network | |
|---|---|---|---|
| Who the agent works for | One insurer's agency | Several insurers' products | Usually one insurer's products, sold through a sales organization |
| How pay works | Commission and bonuses | Commission from each carrier | Commissions on own sales plus overrides on team sales |
| Typical income source | Own sales | Own sales | Own sales, and for leaders, team sales |
| Recruiting emphasis | Some | Little | Central to advancement |
See captive vs independent life insurance agents and how life insurance agents are paid for the first two models.
If you are the customer
Being sold a policy by a recruiter is not a reason to distrust the advice, and being sold by a salaried or independent agent is not a guarantee of good advice. What counts is whether the product fits your needs.
- Check the agent's license and any disciplinary history with your state insurance department.
- Ask which companies and products the agent can offer. An agent limited to one company's term products cannot compare other types. Our questions to ask a life insurance agent guide has a list.
- Ask how the agent is paid and whether any other products are being recommended with the sale.
- Compare at least one outside quote for the same coverage amount, term and health class. Our how to compare life insurance quotes fairly guide explains how.
- Use the free-look period after delivery to review the policy; see the free-look period: returning a policy for a refund.
- Be careful with replacement. If you are urged to drop an existing policy, see twisting and churning: replacement sales abuses.
- Weigh the advice itself. Pitches such as "buy term and invest the difference" are a legitimate strategy with trade-offs, covered in buy term and invest the difference: does it hold up.
If you are invited to join
The FTC's questions for prospective distributors are a useful template. Ask the person recruiting you, and ask for answers in writing:
- What did the typical new agent earn in their first year, after expenses? Ask for the company's published income disclosure, not a testimonial.
- What share of agents who started became licensed? How many are still active after one year, and after three?
- What are the costs: licensing and exam fees, background checks, any required software or training, and what happens to advanced commissions if a policy lapses early?
- How much of the income of the people at the top comes from their own sales versus the sales of their team?
- Are you being paid for selling insurance to customers who need it, or mainly for bringing in new agents?
- Would you be comfortable if the first people you sell to are family and friends, and what happens to those relationships if a policy lapses?
If the answers are vague or you are urged to decide quickly, take time. A legitimate opportunity will still be there next week.
Where to complain
Report misleading recruiting claims to the FTC at ReportFraud.ftc.gov and to your state attorney general. Report misleading insurance sales practices to your state department of insurance; see life insurance fraud: what it is and how it's caught for how insurance fraud reports work.
Key takeaways
- Multilevel structures are legal when pay is tied to real sales and the sellers are licensed; the FTC treats recruiting-driven income as the pyramid-scheme warning sign.
- Only licensed people can sell insurance, and insurers may not pay commissions to unlicensed sellers under the NAIC model.
- Public company filings, such as Primerica's, show part-time sales forces with wide variation in output per representative.
- As a customer, check the license, ask what products the agent can offer and compare one outside quote.
- As a prospective recruit, ask for typical, after-expense earnings in writing before paying or committing.