Recruiting and retention bonus

An insurance company is paying a lot of money to recruit new agents (up to 135% of the previous year's income as signing bonus) and to retain their existing agents.

Why is it necessary for the insurance company to be paying so much money, on top of the high commission rates that are already earned by the agents? Where does the money come from? The simple answer is - the money comes from the policyholders.

I have seen many benefit illustrations that show the about 40% of the value of accumulated premium taken away after 25 years. For example, if the accumulated premium is $500,000, about $200,000 being taken away, leaving only $300,000 to the policyholder. The $200,000 is a lot of money for the insurance company to pay high commission to the agent, to pay high signing and retention bonus and still leave a lot of money from their profits. But it is money taken from the naive and unsuspecting policyholders, leaving them with a net yield that is not sufficient to cover inflation.

If each policyholder "donate" $200,000 to the insurance company and the insurance company is able to sell 10,000 policies in a year, guess how much money is available to pay as signing bonus?

It was reported that MAS issued a statement, "We expect insurers to observe a high standard in their   recruitment". Beyond this statement of good intent, I wonder if MAS does investigate how the policyholder's monies are being spent?

Tan Kin Lian

You can learn how to read the benefit illustration here;