Selling life insurance

There were some questions asked about how a life insurance agent can make a living, if the agent only sell term insurance to earn a low rate of commission.

Here is my answer. Similar to a general insurance agent or a stockbroker or a doctor. Earn a remuneration that is based on the value of the service that is given to the client, and not a high rate of commission that exploits the ignorance of the client.

A general insurance agent earns a commission of 15% on the premium that is paid to cover the risk. In Europe, the commission for motor insurance has decreased to 5% of premium, as the premium is high and the work involved is routine. The insurance agent can still make a living.

A stockbroker charges a commission of 0.3% of the invested sum, share between the firm and the remisier. They do not have to take away  150% of the annual amount of savings.

The doctor earns a fee based on the time spent on consultation and a markup on the medication. Due to competition, the fee is reduced to a rate that the ordinary people can afford. The doctor has to pay the rental of the clinic and the staff to man the reception.

Life insurance sales can also be made using the above approaches. Many people need a large amount of term insurance, say $500,000. They also need disability insurance and medical expense insurance. They can afford to spend up to 2% of their earnings (say $500 to $800 a year) to cover these personal risks. A 15% commision on this premium can be quite attractive.

The life insurance companies have to change its mode of marketing. Most importantly, they have to remember their responsibility to provide good value products and take care of the financial well-being of their clients.

Tan Kin Lian