Application Fee - Does It Go Away??

[spotty]

Silly question. But lets say I write a policy today and that policy is 42/month EFTand the policy has a $30 application fee. So that works out to $2.50 per month. I year 2 will the monthly adjust to $39.50. I should know this, but I have no idea. Please advise.

 

[jdeasy]

Silly question. But lets say I write a policy today and that policy is 42/month EFTand the policy has a $30 application fee. So that works out to $2.50 per month. I year 2 will the monthly adjust to $39.50. I should know this, but I have no idea. Please advise.

It's not an application fee like with med sups. It's a policy fee and it never goes away. The insured pays the policy fee every year.

 

[spotty]

thank you for clarifying the difference. Makes sense now. A kind of slick way for the carriers to pocket some extra $ - especially if they make it on-commissionable.

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meant to say - especially if they make the policy fee NON-commissionable.

 

[Baseball7]

Settlers doesn't have one......

 

[Newby]

The policy fee does have a legit purpose for companies. I used to wonder why they had it if they pay us commission on it. But it's a way they can offer a more competitive premium on larger cases but add more profit for themselves on the tiny cases where their profitability usually takes a hit.

With no policy fee a Company much prefers $100,000 premium written on 100 cases over $100,000 premium written over 250 cases.

With a policy fee it evens it up a bit more because they are collecting more premium per dollar of death benefit on small cases than they are on larger cases.

 

[nfl72]

the policy fee goes away when they die or cancel.

 

[VolAgent]

The policy fee does have a legit purpose for companies. I used to wonder why they had it if they pay us commission on it. But it's a way they can offer a more competitive premium on larger cases but add more profit for themselves on the tiny cases where their profitability usually takes a hit.

With no policy fee a Company much prefers $100,000 premium written on 100 cases over $100,000 premium written over 250 cases.

With a policy fee it evens it up a bit more because they are collecting more premium per dollar of death benefit on small cases than they are on larger cases.

I almost posted something to this effect.

Basically the policy fee levels out the fixed costs between policies. The cost to underwrite and service a policy is relatively fixed. It does not change based on the face amount for that policy form.

As to whether it is commission-able or not, it really doesn't matter. Companies basically figure out what they want agents to make and then tweak the comp plan to fit.

Of course, the rubber then meets the road and agents find all the loopholes and flaws in the comp plan.

 

[Josh]

the policy fee goes away when they die or cancel.

One of those helps with a long-term tax and debt strategy as well.