Tan Kin Lian's Blog: Commission on high cost policies

Friday, February 22, 2008

Commission on high cost policies

Dear Mr. Tan,
How much does a life insurance agent earn by selling the so-called "high cost" life insurance policies, such as whole life or critical illness?

REPLY
It is better to look at the total cost to the customer, as there are three layers which earn commission on the life insurance policies that is sold to the customer. For most whole life or critical illness policy, the total commission paid is 160% of the annual premium.

If you pay $300 a month towards a life insurance policy, the total commission that is deducted from your policy is 160% of $3,600 or a total of $5,760. About two-third of this amount goes to the agent that sells the policy to you. The remaining one third goes to the upper two layers. This amount is taken away over the first three years of the policy.

Some insurance companies operate at lower cost. The commission that is taken away from your policy is less than 160%.

6 comments:

Anonymous said...: Does that tell you how much insurance agents earn? for advising? rubbish, hardly of this for the salesmen. Maybe the good advisers.
For the salesmen it is form filling
and providing product information.You pay them so much for doing that?
And yet you demand a lot more from your lawyer, his expertise in law or a doctor. How much do doctors charge for CONSULTATION ? $50 with medicine? And you are willing to pay insurance salesmen $3000 to $4000 for filling up application forms?
I know some agents gone to that extent to make up for being over paid by providing other services like fetching clients' children from school, babysit cleints' children, celebrate birthday, send client to hospital and i wonder what else.I wonder the lawyers and doctors do these sorts of things? But some agents think and call themselves financial doctors.Very, vely far from it and it is an insult to doctors. Maybe some good financial planners do come near the medical profession, those with professional qualification like CFP. But the rest,like in the US, they are trampled and despised by the public.; February 22, 2008 3:29 PM
Anonymous said...: Thanks for highlighting this. Given that you are the ex-CEO of NTUC Income, I think there must be some truth in your post.

I did not ask my Income advisor how much he earns. At least now I have a better idea.

Cheers.; February 22, 2008 9:44 PM
Anonymous said...: Insurance agents are required to disclose their commission under the Financial Advisory Act. It is your right to ask so that you can know how much of premium goes to him or her.
The commission is part of the cost of the insurance and it affects the return of your policy.This explains why whole life takes a longer time to acquire cash value and to break even. If you buy term and invest the rest, the return is higher and the break even point is very much shorter, about 3 years; for whole life the break even is around 13 years, 10 years difference.; February 23, 2008 1:28 AM
Anonymous said...: So does it mean after the first three years, there is no longer any deduction of premiums to pay for costs? If that is true, what is there for the insurance companies to continue to provide good service? No wonder, I am getting extra lousy service from NTUC Income nowadays.; February 23, 2008 1:45 PM
Anonymous said...: The $4 you pay every month is the "service charge". This will be waived when you have accumulated at least $15K. Thereafter, the charges are to the fund you invested in.
What service do you want from ntuc or your salesman?; February 23, 2008 4:58 PM
Anonymous said...: Don't want to pay commission and still demand service.

Will anyone work without salary forward and still report to office?; February 27, 2008 5:08 PM