Need to Know the Commission Plan for Permanent Life Policy

[semsem]

Hello insurance experts,

I am actually new here and in the insurance industry and would like to ask about Mutual Trust Life insurance company.

I got an appointment offer with a commission plan that make me suspicious:

They offer mutual life policies ( permanent ) that build up cash value for retirement solutions and pay off mortgage.

Now here is an example of the agent commission and I need your advice:

If the policy monthly premium is $800.00 that means as they told me $500.00 will be the policy holder's balance and $300.00 policy fees

Now they said that agent's commission will be the policy fees 300x12= $3600x52% OR 80% OR 90% OR even 100% depends on the sales levels.

The question here is: Is the company formula for the commission fair since I will be non-captive agent and I have to prospect clients myself ?

Am I right when I say commission should be $800x12x the percentage which should be 80% to 100% equal $7680 to $9600

Thanks guys!

Your advise will be highly appreciated

 

[DHK]

Looks about right. However, it's standard company practice to only advance 9 months of 12 months of advanced commissions. So don't be surprised when that's pointed out in the agreement.

The important question you should be asking is this: How will I prospect and get people to want to sit down with me and talk about insurance solutions? A 100% contract won't do you any good if you aren't able to get in front of people on a regular basis and present life insurance as a favorable solution.

 

[billyb]

You must be planning on working a different market than me by using a $800 monthly premium as an example.

 

[semsem]

Looks about right. However, it's standard company practice to only advance 9 months of 12 months of advanced commissions. So don't be surprised when that's pointed out in the agreement.

The important question you should be asking is this: How will I prospect and get people to want to sit down with me and talk about insurance solutions? A 100% contract won't do you any good if you aren't able to get in front of people on a regular basis and present life insurance as a favorable solution.

Ok so do you mean that the advanced commission should be counted from the $300 not from the $800?

 

[pfg1]

You get paid that commission rate on the "base" premium, you also get a smaller commission on the "paid up additions" premium, or any other riders that may be on the policies (term, etc). How the policy is designed is what dictates how much of the premium goes towards the "base", which is where the bulk of commission is paid. Most policies that are designed for cash accumulation have anywhere from 40-50% base, the rest in PUA.

The commission rates start low, and go up as you mentioned - based on production.

 

[DHK]

Ok so do you mean that the advanced commission should be counted from the $300 not from the $800?

As Pfg1 said - it depends on the base premium and total policy structure.

This video will be helpful:



However, that really wasn't what I was talking about. Let's take your $800 per month example and let's assume that 50% of that premium is in paid-up additions (tiny commissions) and the other 50% of that premium pays you a commission of 85% (for example).

$400 x 85% = $340.

Now, some contracts will give you an advance of the annual premiums.

$340 x 12 months = $4,080.

However, those contracts will typically only advance 9 months instead of 12 and then pay the remaining 10th, 11th, and 12th months "as earned" when the policyholder pays.

$340 x 9 = $3,060.

Some of these contracts will also limit or cap the amount of the advance to a specific dollar amount, such as $3,000 or $3,500 or whatever. Also, since the advance IS a loan against future commissions that have yet to be paid by the policyholder, you may pay an amount of interest, such as 6% of the remaining outstanding balance.

I know I got a little technical here, but read your contract and understand how it works.

Of course, that's assuming that you know how to prospect, fact-find, and present life insurance solutions.

 

[Matthew King]

DHK provided a great explanation here. I normally just use this formula when people ask me what they could make.

for FE:

[Premium Amt Per Month] x [Advancing] x [Commission Level] sometimes you'll have to take away the policy fee for certain carriers.

So it would look like this:
[Premium Amt Per Month] x [Advancing] - [Policy Fee] x [Commission Level]

 

[VolAgent]

DHK provided a great explanation here. I normally just use this formula when people ask me what they could make.

for FE:

[Premium Amt Per Month] x [Advancing] x [Commission Level] sometimes you'll have to take away the policy fee for certain carriers.

So it would look like this:
[Premium Amt Per Month] x [Advancing] - [Policy Fee] x [Commission Level]

Actually that isn't quite right. It is typically calculated as:

(([Monthly Premium] x 12{months in a year}) - [Policy Fee{if non-commissionable}]) x [Commission Level] x [Advancing Percentage] = Advance

Some do:
([Monthly Premium] - [Monthly Policy fee{if non-commissionable}]) x [Commission Level] x [# of Months Advanced] = Advance

And many companies do have a cap on what they will advance in any one month. I have seen traditional companies even cap what they will advance in a month in aggregate. Mutual Trust Life is a traditional life company, although I don't know what if any caps they have on advances.

 

[FinalExpenseDojo.com]

In my opinion, if you have to do all the prospecting you should be getting street level or higher commissions. You shouldn't have to put up production to "move up" in levels when they haven't earned that much of a spread. That's just a way for them to make a higher override.

Unless they're giving you a salary of course...

Starting in this business with selling to friends and family & prospecting is the fastest way to go out of business. The only one who benefits from this situation is the manager when he sells all your friends & family policies. Once your warm market dries up he will move on to the next recruit's family.