Lower renewal commission may mean lighter withdrawal?

Discussion in 'SP2' started by JamaicanJem, Nov 26, 2019.

  1. JamaicanJem

    JamaicanJem Ton up Member

    Hi All,

    On page 29 of Chapter 9, the answer states that the risk of withdrawals/paid up rates may be lighter than expected if the Co. changes to a structure of lower level commission over the term vs higher initial commission. Can anyone explain why? I can see how the commission may affect the asset share but I'm not sure why this would affect withdrawals or mortality experience.

    Best Regards.
     
  2. Mark Willder

    Mark Willder ActEd Tutor Staff Member

    If the salesperson is paid mostly by initial commission, then they will focus on selling more policies, but they have no incentive to ensure that the policies remain in force. So withdrawals could be high.

    So by switching to a commission structure with more renewal commission, the salesperson is now incentivised to sell contracts that they think the policyholder will want to keep. They also have an incentive to provide continued advice which may help the policyholder to understand the importance of keeping the policy going.

    Best wishes

    Mark
     
  3. JamaicanJem

    JamaicanJem Ton up Member

    Great! Thanks for that Mark.
     

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