I read the news report that MAS is investigating the compensation packages of the life insurance agents in a few large companies.
I did hear from some agents of the large compensations that are paid by some companies to attract the agents from their competitors to join them.
Some of the compensation packages work out to more than $100,000 for a good producing agents.
It is necessary to pay a large compensation because the migrating agent will lose the renewal commission from their previous company when they quit. The renewal commissions are for policies sold previously, which are generally payable for six years or longer.
The senior agents will also lose the overriding commission on the policies sold by the agents under them.
Apart from the compensation for the loss of commission on past policies, the migrating agent also expect to earn a higher income with the new company.
How does the new company who recruits the migrated agent, expect to earn enough profit to pay the huge compensation and the higher commission?
This comes from the big profit margin contained in the life insurance policies that the migrated agent is expected to sell.
The profit margin, which is described as distribution cost, can be as much as two years of premium.
If the monthly premium is $1,000, the distribution cost can be $24,000.
If the migrated agent sells 5 policies a month, the profit margin is $120,000. This has to be shared by the agent, his supervisor and the insurance company.
Someone who buys a life insurance policy "for investment" may not realize that he or she is giving away as much as two years of the premium as distribution cost.
This type of policy gives a poor return. In fact, the return is negative for more than ten years.
Which buyer will agree to pay $24,000 as distribution cost? I suspect - none. But the buyer is usually not aware of the high distribution cost. The sale is made based on other considerations.
As long as the regulator (i.e. Monetary Authority of Singapore) continue to allow life insurance companies to take away a large distribution cost from its policyholders, they will not solve this problem of migrating agents, high compensation packages and other bad practices.
The ordinary unsuspecting buyers of life insurance policies pay a heavy price.
This has been going on for a few decades.
In spite of these high expenses, the life insurance companies show huge profits each year, by the billions.
All of these are made at the expense of a hundred thousand consumers every year.
Tan Kin Lian
I did hear from some agents of the large compensations that are paid by some companies to attract the agents from their competitors to join them.
Some of the compensation packages work out to more than $100,000 for a good producing agents.
It is necessary to pay a large compensation because the migrating agent will lose the renewal commission from their previous company when they quit. The renewal commissions are for policies sold previously, which are generally payable for six years or longer.
The senior agents will also lose the overriding commission on the policies sold by the agents under them.
Apart from the compensation for the loss of commission on past policies, the migrating agent also expect to earn a higher income with the new company.
How does the new company who recruits the migrated agent, expect to earn enough profit to pay the huge compensation and the higher commission?
This comes from the big profit margin contained in the life insurance policies that the migrated agent is expected to sell.
The profit margin, which is described as distribution cost, can be as much as two years of premium.
If the monthly premium is $1,000, the distribution cost can be $24,000.
If the migrated agent sells 5 policies a month, the profit margin is $120,000. This has to be shared by the agent, his supervisor and the insurance company.
Someone who buys a life insurance policy "for investment" may not realize that he or she is giving away as much as two years of the premium as distribution cost.
This type of policy gives a poor return. In fact, the return is negative for more than ten years.
Which buyer will agree to pay $24,000 as distribution cost? I suspect - none. But the buyer is usually not aware of the high distribution cost. The sale is made based on other considerations.
As long as the regulator (i.e. Monetary Authority of Singapore) continue to allow life insurance companies to take away a large distribution cost from its policyholders, they will not solve this problem of migrating agents, high compensation packages and other bad practices.
The ordinary unsuspecting buyers of life insurance policies pay a heavy price.
This has been going on for a few decades.
In spite of these high expenses, the life insurance companies show huge profits each year, by the billions.
All of these are made at the expense of a hundred thousand consumers every year.
Tan Kin Lian
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