This article was first published by budget babe.
everyone talks about how a former axa life insurance agent, ramesh krishnan, received $4 million in damages. superior court judicial commissioner george granted this based on the settlement package offered by prudential:
Reading: How much does a life insurance agent make in commission
- an initial allocation of $675,000+
- a starting monthly salary of $65,625 +
- a salary of $43,750 for the next 12 months.
In other words, we can look at this as a $4 million annual paycheck being handed out.
many had a lot to say about the absurdly high salary.
credits: the straits times singapore facebook page
The key question I had after reading the news article was:
was the agents’ focus on regular premium policies self-motivated?
“the ramesh organization had predominantly focused on regular premium policies rather than single premium policies since the beginning of 2010. (regular premium policies are those for which the policy holder policy pays premiums over the life of the policy, while single-premium policies are those where, as the name suggests, the policyholder pays a premium at the beginning of the coverage period). make the profit when market conditions are favourable. ramesh states that he had been assured by the then managing director, mr gilbert pak, in february 2010 that they agreed to take into account only the persistence rate with respect to regular premium policies when assessing the eligibility of insurance advisors. the ramesh organization to receive incentives and rewards in the event that their persistence rate with respect to unique premium products dropped as a result of the organization’s change in focus. with this guarantee, the ramesh organization had focused on regular premium products”. source
Doesn’t this sound like the motivation of agents to sell periodic premium policies is no longer based solely on the needs of their clientsbut also because they wanted to increase their persistence rate? It sounded like that to me leh?
(Persistence rate is a key evaluation criteria of an agent’s performance when applying for top-ranked bonus and incentive awards.)
letter from axa CEO glenn williams
large number of expired/surrendered policies “based on our observations of notable trends [in] policy expiration and surrender, we have strong reasons to believe that former advisors in [the] organization ramesh has been involved in [the] misrepresentation of clients’ policies.we are very concerned whether clients have received proper advice or [whether] former advisers have engaged in improper change/replace practices that are detrimental to interests of [the] clients.”
(“Twist” is a term used to describe the situation where a policyholder is persuaded to allow an existing policy to lapse, only to enter into a new policy on similar terms.)
“twisting” hurts the consumer, but it’s good business for the agent, who can earn commissions back. however, it is not clear from the ruling if any further evidence was found to support axa’s claim that the agent had indeed practiced “twisting”, and probably only the agents themselves will have the answer.
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source: the times of the strait
The next question we all ask ourselves is: how much can financial advisors earn selling us insurance?
Along with the ongoing debate over life and term insurance, many financial bloggers advocate buying term and investing the rest (btir), while insurance agents are clamoring that you should get whole life insurance (wl ) instead. recently, there was even a rather controversial article published (by an insurance agent, unsurprisingly) to make the case for whole life policies.
Who is right and who is wrong? that’s a topic for another day, but in the meantime you can read my previous posts on this debate here and here. A common argument raised by btir advocates is that insurance agents are pushing for wl because it fills their pockets with large commissions.
Is that true? How much can your insurance agent make if they sell you a whole life policy instead of term insurance?
let’s take a look.
someone managed to obtain a copy of the agency commission schedule from one of the major insurance companies in singapore, which I have reproduced below and will use for this article.
As you can see from the commission table above, whole life, endowment, and investment-linked (ILPS) insurance policies have the highest commission rates.
read why I canceled my ilp here.
let’s look at two insurance agents: one advocating btir and one promoting wl.
sale of whole life insurance
wow! just closed a whole life policy with an annual premium of $4000 (I’m using the quote I recently received from my agent for 500k tpd if you were wondering).
1. your first year commission is $2000 2. you earn a second year rollover commission of $1000 3. your third through sixth year rollover commission is $200 annually
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All you need to do to earn $50,000 in the first year is close 25 whole life policy cases with an annualized premium of $4,000.
That doesn’t sound too difficult, does it? technically you just need to find at least 2 clients each month to reach your quota. not even my 9-6 p.m. job! m. he paid me so much income!
sale of temporary insurance
On the other hand, let’s compare with the other agent who closes a term policy with average annualized premiums of $400. let’s call him jack.
1. first year commission: $200 2. second year commission: $100 3. third through sixth year commission: $20 annually
Unlike you, jack needs to find 250 consumers to buy him term insurance if he wants to match his $50,000 annual income. Assuming you go on vacation in June and December with your kids, that means you need to close 25 clients each month, or almost 1 sale per day!
Let’s not forget that insurance companies also offer many other benefits to their agents, including bonuses and long-term incentives that can also significantly increase your income.
How do I know? Well, I married an ex-insurance agent who was pretty bad at his job (because he mainly sold term, health, and travel insurance, things I agree with). he didn’t push ilps or endowment plans, and that’s why i told him to quit his job and change careers (i’m not kidding).
Still not enough proof for you? Check out this Prudential Million Dollar Round Table Insurance (MDRT) selling you the same dream career this way. you can earn $100,000 in a year!
sale of personal accident insurance
In the table, you can also see that the accident plans have a flat rate of up to 30% that is paid throughout the term of the premium payment. this means that you are not only limited to 6 years of accident plans, but much more!
The smart insurance agent might also start your relationship and gain your trust by selling you an affordable personal accident plan, then slowly upgrade to other plans later.
So, how much commission does your insurance agent make selling you that policy? Well, now you know! Also read: Questions to ask your insurance agent (including how much they can earn from you)
for the record, my policies are run by my 3 agents who focus on selling me the plans i need instead of pushing me into things like ilps or wl. maybe because they know they are dealing with a cheap girl lol. I’m not saying agents promoting such products are bad, but they are definitely not my cup of tea. At the end of the day, insurance is a complex product and there are no right or wrong answers. I can’t stress enough having a trusted advisor who will focus on selling you the right policies that fit your needs vs. the ones that line your pockets. good luck finding a good advisor!
with love, budget babe
budget babe is a normal lady striving for financial freedom in singapore before the age of 45. she writes to empower her fellow Singaporeans to take charge of their own lives and finances, and to finally break free from the competitive rat race.
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