How Do Non-advance Commissions Work?

[Thad.Sipple]

Now it has been 25 years since I was advanced commissions, and I always used a commission/salary bucket approach.

Here is how it worked. Now back then everything was underwritten so this quick issue stuff today usually took 4-8 weeks to issue just like full underwriting is now. We also had to mail apps to the Home Office.

Anyway.... it is a simple approach, Create a bucket or money market account that all commissions/Advances are deposited and charge backs are paid from if you have to write a check back to the company.

Do not touch the money for 3 months. on the 14th week, begin to pay yourself a salary or LLC/Distribution of 8% of the total amount of the bucket per week. Also withdraw 2.0% and deposit it into a business account for business expenses which includes purchasing leads, office/phone, E&O, CE, Books/Training/Seminars, Staff Salaries and Employer SocSec Taxes (agent included) and any State Unemployment/Work comp (depending on State) essentially spending 10% of your bucket. each week.

Example bucket. This requires you to not use commissions at all for the first 3 months. Selling insurance is a business and you must set aside funds to invest in this business. Be sure you have all expenses saved for 3 months + any extra weeks needed for training and trial/error + lead costs. The 3 months begins after you have already cut your teeth and are ready to go for it.

Keep this up for one Year and re-evaluate it. What will happen is, if you had a good year your bucket should have doubled/tripled from the date you started drawing on it. This also means your Draw/salary each week went up as the bucket grew.

This is where you make a decision to cut your advance from 9 to 6 months and continue the same thing for another 9 months. At this point you have been in the business for 2 years and are continuing to be successful. The main reason you are successful is that you never worried from week to week about money. You had a steady income to pay the bills and keep the wife and kids happy. When you don't think about your weekly income you have an easy time selling.

At the beginning of the 2nd year, you go as earned with all your carriers except your GO TO company where you write the majority of your business. You still deposit the As Earned money into your bucket and continue your draws for another 6 months. At this time, if your GO TO company has a 3 month advance change it to that for another 6 months.

At the end of year three, Every Carrier is As Earned. Still using the bucket approach to pay yourself.

Now at any time you have a fantastic week... Made $10k on a SPWL or Annuity or sold a large Target Prem Case. DO NOT SPEND IT WHEN ISSUED. Simply deposit it in the bucket. You will be thankful when it is time to take the 4 weeks of vacation time Insurance agents seem to take and you will be glad the bucket was a little over funded.

I Hope this helps some of you new guys out there. I did this when I was 28 and just started out as an Independent Producer after working with MetLife for 4 years. I learned this method through them and it worked perfectly for 50% commissions. It is even better now for the Street Agent at 100-115%.

As new agents, you will find there are always 2 sides to insurance. The Selling/prospecting side and the business side. You have to take responsibility for both sides or you will fail in this business.

Wow great advise, I wish I had this model 16 years ago. Thanks

 

[Iwillpay]

I'm new (2.5 months) to being independent and only experienced LH advances and "pay thru" so I really don't know how other insurance companies pay the non-advanced commissions. If you get a 9 month advance do they pay months 10-12 "as earned" every month or do it some other way?

Yes most companies that I know of pay months 10-12 as earned. Advanced commissions can be a down fall for some agents. When I just started I took as earned and work hard in the first 2 years to build a nice monthly income. If you write $12000 API average monthly your monthly income would be substantial if your lapses are minimal and manageable charge backs if any. Also I Wrote semi-annual and annual payments whenever I can and always qualified for the company annual bonus they had at that time. Served me well in those years.

 

[Full Throttle]

Now it has been 25 years since I was advanced commissions, and I always used a commission/salary bucket approach.

Here is how it worked. Now back then everything was underwritten so this quick issue stuff today usually took 4-8 weeks to issue just like full underwriting is now. We also had to mail apps to the Home Office.

Anyway.... it is a simple approach, Create a bucket or money market account that all commissions/Advances are deposited and charge backs are paid from if you have to write a check back to the company.

Do not touch the money for 3 months. on the 14th week, begin to pay yourself a salary or LLC/Distribution of 8% of the total amount of the bucket per week. Also withdraw 2.0% and deposit it into a business account for business expenses which includes purchasing leads, office/phone, E&O, CE, Books/Training/Seminars, Staff Salaries and Employer SocSec Taxes (agent included) and any State Unemployment/Work comp (depending on State) essentially spending 10% of your bucket. each week.

Example bucket. This requires you to not use commissions at all for the first 3 months. Selling insurance is a business and you must set aside funds to invest in this business. Be sure you have all expenses saved for 3 months + any extra weeks needed for training and trial/error + lead costs. The 3 months begins after you have already cut your teeth and are ready to go for it.

Keep this up for one Year and re-evaluate it. What will happen is, if you had a good year your bucket should have doubled/tripled from the date you started drawing on it. This also means your Draw/salary each week went up as the bucket grew.

This is where you make a decision to cut your advance from 9 to 6 months and continue the same thing for another 9 months. At this point you have been in the business for 2 years and are continuing to be successful. The main reason you are successful is that you never worried from week to week about money. You had a steady income to pay the bills and keep the wife and kids happy. When you don't think about your weekly income you have an easy time selling.

At the beginning of the 2nd year, you go as earned with all your carriers except your GO TO company where you write the majority of your business. You still deposit the As Earned money into your bucket and continue your draws for another 6 months. At this time, if your GO TO company has a 3 month advance change it to that for another 6 months.

At the end of year three, Every Carrier is As Earned. Still using the bucket approach to pay yourself.

Now at any time you have a fantastic week... Made $10k on a SPWL or Annuity or sold a large Target Prem Case. DO NOT SPEND IT WHEN ISSUED. Simply deposit it in the bucket. You will be thankful when it is time to take the 4 weeks of vacation time Insurance agents seem to take and you will be glad the bucket was a little over funded.

I Hope this helps some of you new guys out there. I did this when I was 28 and just started out as an Independent Producer after working with MetLife for 4 years. I learned this method through them and it worked perfectly for 50% commissions. It is even better now for the Street Agent at 100-115%.

As new agents, you will find there are always 2 sides to insurance. The Selling/prospecting side and the business side. You have to take responsibility for both sides or you will fail in this business.

That is probably the best business side post I have read on this site! I am going to adopt it immediately and I am certainly not new. The model forces reinvestment in your business and not living beyond your current production.

It won't work for a broke agent coming in with no savings, but even a broke agent could work the numbers backwards and having a savings account goal, then put themselves on this system.

Thanks for sharing!