Commission Structure of Insurance Agents REVEALED

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candy_chia
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Commission Structure of Insurance Agents REVEALED

Post by candy_chia »

Below table is extracted from a blog that provides crystal-clear figures on the Commission Structure of Insurance Agents, it may help one to assess ways to cut down unnecessary commissions (probably by shortening the premium payment periods). In addition, it may explain why majority of the Insurance agents kept pushing vigorously for certain insurance policies.
Agency Schedule of Commissions.png
Agency Schedule of Commissions.png (31.99 KiB) Viewed 16669 times
As we can see from the table above, whole life and investment link insurance policies have the highest commission rates.

In addition, an insurance agent would receive renewal commission for the next 5 years after he closes a sale. This means that as long as the policy is being renewed, the insurance agent will be able to get additional commissions for the next 5 years (albeit at a lower rate).

For ACCIDENT Products, the commission rate is a flat rate of up to 30% and is payable THROUGHOUT the Premium-Paying Term. If I were an insurance agent, I will definitely put my focus on accident products.
insurance forms.png
insurance forms.png (110.42 KiB) Viewed 16669 times
Assuming a person buys an accident insurance policy with annual premium of $300. The insurance agent will receive $90 (30% of annual premium) as commission. As long as his client renews the policy every year, the insurance agent will get $90 yearly without even doing anything. This is their form of 'passive income' in the insurance world.

Let's now assume the insurance agent sells 2 accident policies with annual premium of $300 every week.

~~ After 3 years, he would have sold 312 accident policies. The renewal commissions from these 312 accident policies he sold in the past 3 years would amount to $28,080 per year or $2,340 per month.

~~~ This means that the monthly 'passive income' for the insurance agent is $2,340 after 3 years and

~~~~ this is based on the assumption of selling just 2 accident products per week.

Despite the high commission rates of insurance policies, I will still need insurance to protect the financial well-being of my family and myself.

pre-existing illness.png
pre-existing illness.png (72.74 KiB) Viewed 16669 times
In my opinion, a person should have

=> at least an upgraded Medishield plan which covers 100% of the medical bills(including co-insurance and deductible) and
==> an income replacement insurance which provides a regular stream of income during the period of disability.

Having said that, the type of insurance a person needs really depends on his/her preference and family situation.

Source- http://onemilliondiary.blogspot.sg/2012 ... rance.html
lootster
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Re: Commission Structure of Insurance Agents REVEALED

Post by lootster »

Agents seldom sell accident plan because the premium is very small as compared to endowment or life plan. Being a term plan, insured don't keep the plan for long as accident plan does not have any cash value.

Just imagine how many people the agent has to sell to if he or she uses accident plan to meet the sales quota. Therefore, most choose to sell ILP, life or endowment as they can proposed bigger cases.

In the real world, agent tends to ask client to lapse their accident plan to buy plan which give them cash value..... That's how it works! :cry:
candy_chia
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Re: Commission Structure of Insurance Agents REVEALED

Post by candy_chia »

Don't agree that Insured won't retain the accident plan for long as my hubby kept his PA policy since 1997, paying a yealy premium of $230, total premium paid to date is $3,451, but sadly, didn't claim 1 cent so far.

AIA PAL Plan.png
AIA PAL Plan.png (6.43 KiB) Viewed 16579 times
On the other hand, his AIA agent already earned aggregrate passive income (commission) of $1,035.30 (30% of premium).
accident policy.png
accident policy.png (41.8 KiB) Viewed 16579 times
Not surprise that whole life policy & those bundled with Early Stage Critical Illness are cream of crop since premium are higher, especialy when the premium payable terms drag to 25 years or longer, fetched an immense commission of 50% for 1st year & 25% for 2nd year.

Therefore, to avoid footing unnecessary selling & Admin fee, request for shorter payment term of 5 years or 10 years.
AIA Prime Life.png
AIA Prime Life.png (6.5 KiB) Viewed 16579 times
That explains why my AIA Prime Life policy only break-even on the 20th year!

lootster wrote:Agents seldom sell accident plan because the premium is very small as compared to endowment or life plan. Being a term plan, insured don't keep the plan for long as accident plan does not have any cash value.

Just imagine how many people the agent has to sell to if he or she uses accident plan to meet the sales quota. Therefore, most choose to sell ILP, life or endowment as they can proposed bigger cases.

In the real world, agent tends to ask client to lapse their accident plan to buy plan which give them cash value..... That's how it works!
lootster
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Re: Commission Structure of Insurance Agents REVEALED

Post by lootster »

Hi Candy,

I would say you should be happy that your hubby never claim a single cent! Which means all is well :D

Your hubby must have a good relationship with his agent cos I'm surprise he has kept his PAL plan for so long! Actually he can shop around for a better deal and switch out to another plan anytime he like.

Unlike life insurance, you won't lose out as there is no surrender value for accident plan. The SAF Aviva group term should be cheaper. (I bought it too)

I also have AIA prime life bought many years back but don't think has breakeven. Those old NTUC living policy should breakeven earlier on comparison.
candy_chia
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Re: Commission Structure of Insurance Agents REVEALED

Post by candy_chia »

Recently changed to General Insurer, Tenet, which truly offers more value-for-money for same insured amount.

We also kept our Aviva medishield plan recommended by Dennis (when he was a financial planner then) since 2005, only recently jump ship too!

My hubby is a great collector of "antiques" (buy & hold & forgotten), if only that is APB shares! :wink:
lootster wrote:Hi Candy,

I would say you should be happy that your hubby never claim a single cent! Which means all is well :D

Your hubby must have a good relationship with his agent cos I'm surprise he has kept his PAL plan for so long! Actually he can shop around for a better deal and switch out to another plan anytime he like.

Unlike life insurance, you won't lose out as there is no surrender value for accident plan. The SAF Aviva group term should be cheaper. (I bought it too)

I also have AIA prime life bought many years back but don't think has breakeven. Those old NTUC living policy should breakeven earlier on comparison.
Darren Lee
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Re: Commission Structure of Insurance Agents REVEALED

Post by Darren Lee »

Lovely!

This serves as a reference for many graduates when considering reviewing their own policies. Being in the industry, the rates are the industrial avg.
Accident & Health plan "passive commission" is a method that some agent adopt in their business.

In my previous outfit as an insurance agent, I have heard of seasoned agents, have 500-1000 accident plans under their belt (you do the maths) which AIA is quite well known for. Some see it as sort of a CPF replacement, as agent don't get CPF contribution but employers, they are deem self-employed.

Candy has pointed out that life policies for instance, short premium terms gives lower % revenue that also equates to higher premiums per annum/month. While its good to know agents motivation to sell certain plans. Commissions aside, I suggest whoever is doing their own review to temporarily ignore that and focus on real needs ; how much cover is really needed & ability to maintain the essential plans w/o straining their cash-flow. And not to cancel a policy just because its paying high commissions.

View it from a need based perspective and then shop around in the market once you know exactly what you need.
My 2cents worth.
Darren Lee
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