How Much Do You Budget for Chargebacks?

[donamese]

What percent do you believe should cancel within 30 days of you selling it? To me, this number should be minimal if I truely sold the policy and made the client understand what they are purchasing. High pressure sales tactics and this number can sky rocket.

 

[Josh]

What percent do you believe should cancel within 30 days of you selling it? To me, this number should be minimal if I truely sold the policy and made the client understand what they are purchasing. High pressure sales tactics and this number can sky rocket.

I see you continually beating on the "if it's higher than... then it's high pressure sales tactics..."

Believe it or not, a low persistency rate doesn't always mean it's just high pressure sales tactics or overly expensive insurance.

Folks writing 6-9 policies/week aren't necessarily pushing folks into anything, but their persistency rate is going to be different than the folks that only write a few a month to existing clients. Some folks don't pay their cable bill or their cell phone bill and they know they want those things. Sometimes folks just don't pay their life insurance premium, it happens. If an agent is writing enough business, that's just going to happen.

Back to the issue at hand, we're talking about chargebacks. As I said before, a 9 month advance is a 75% advance; an agent shouldn't lose more than 25% of their business so on the balance the rest of the advance should more than cover the chargebacks.

 

[djs]

When looking at chargeback reserves, you shouldn't be looking at how low your chargebacks might be one month, but rather, on that odd month, how high they might be, even if not consistent with your normal performance.

Most people would be well served to take the entire advance, put it into a savings account and then pay themselves as earned. Okay, that method can be tough for the first year, but after that, your income smooths out and there is little chargeback risk.

Dan

 

[gordon112]

If your new the whole concept of chargebacks can be a scary topic or something that an agent would worry about.

Not to mention any names, but there is a few captive companies out there that hold a % of advance in an account for future chargebacks and expenses up to a certain stated amount. Once the acct is up to that stated amount, the agent is given 100% of the advance.

So in practice, an agent can actually set up the same thing, hold back 30% of advance for chargebacks until the act gets to a stated amount to cover for the disaster month.

all in imho
Gordon

 

[donamese]

I see you continually beating on the "if it's higher than... then it's high pressure sales tactics..."

Believe it or not, a low persistency rate doesn't always mean it's just high pressure sales tactics or overly expensive insurance.

Folks writing 6-9 policies/week aren't necessarily pushing folks into anything, but their persistency rate is going to be different than the folks that only write a few a month to existing clients. Some folks don't pay their cable bill or their cell phone bill and they know they want those things. Sometimes folks just don't pay their life insurance premium, it happens. If an agent is writing enough business, that's just going to happen.

Back to the issue at hand, we're talking about chargebacks. As I said before, a 9 month advance is a 75% advance; an agent shouldn't lose more than 25% of their business so on the balance the rest of the advance should more than cover the chargebacks.

The reason I ask is because you said:

That makes up for the difference. Once they've made it through the free-look of course it should stay on the books, but most agents get paid well before the free-look is up which does = a chargeback.

People on here are saying 1st year lapses should be 23-25%. I said 10% then you said not counting the ones that drop off in the 30 day free look make up the rest. If you have 13-15% that drop off in the first 30 days, that is excessive in my opinion.

I understand things happen, like a car accident or someone gets ill or huge storm rips a hole in the roof and they need every penny they have. These types of things happen but minimally. If they are worried about if they can afford to pay their cable bill next month, their finances were not looked at verey closely by the agent. (Later in the year/years I get, not within 30 days of buying the policy)

 

[rousemark]

Didn't come through.



That makes up for the difference. Once they've made it through the free-look of course it should stay on the books, but most agents get paid well before the free-look is up which does = a chargeback.

In 41 years I can't remember ever having a policy returned during the Free Look period as NTO. If this is the case with most agents, then NTOs should not change the percentages very much.

 

[Josh]

In 41 years I can't remember ever having a policy returned during the Free Look period as NTO. If this is the case with most agents, then NTOs should not change the percentages very much.

Has FE been your primary market?

 

[rousemark]

Has FE been your primary market?

Not always... Over the years I have been a generalist in the Family Markets with an emphasis on seniors for about half of those years.

I have bought FE leads a couple of times but most of my prospects have come from referrals or canvasing.

 

[Josh]

Not always... Over the years I have been a generalist in the Family Markets with an emphasis on seniors for about half of those years.

I have bought FE leads a couple of times but most of my prospects have come from referrals or canvasing.

That's a very different situation.

 

[senior-advisor-indiana]

I don't think domanese is too far off. I have no idea on what the % should be, but Oxford life says it better not be higher than 15% or you are canned...Mine is 11.1%