Sunday, October 7, 2012

Commission Structure of Insurance Agents REVEALED




I managed to get a copy of the Agency Schedule Of Commissions from my insurance agent friend working at one of the insurance companies in Singapore. This schedule of commissions describes the commission structure and rates for the different types of insurance policy plans. I summarized and inputted the information onto a spreadsheet(as attached below). The names of the products are intentionally left out in order to conceal the identity of the insurance company. 


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.

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. 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.