Date of Award

4-1970

Degree Type

Master's Essay - Restricted

Degree Name

Master of Business Administration (MBA)

Department

Business Administration

Abstract

The current and traditional basis for compensating a life insurance agent has been the payment of a first year commission which can be as large as fifty-five percent of the first annual policy premium. This first year commission is followed by renewal commissions which typically total forty-five percent of the policy premium paid over an eight to nine year period. An illustrative example would be five percent of the policy's renewal premium over a nine year period. The agent receives no renewal commission on lapsed policies. This current compensation system was a direct result of Section 213 of the Insurance Law of New York. This law limited the agent's compensation to a maximum of fifty-five percent of first year premium and renewal commissions which can total no more than forty-five percent of the renewal premiums. 1 For the company, this compensation approach has been advantageous in that it produces a direct relationship between the renumeration it pays an agent and his success both as to production and the maintenance of business in force. It is reasonable to expect that this deferred compensation system will continue in the future as the New York state regulation on agent compensation and practical consideration force life insurance companies to restrict the first year commissions paid to agents. However, the deferred nature of this compensation system has always made it difficult for an agent to earn a living during the first three or four years in the life insurance business.

Comments

An Essay Presented to the Faculty of the Graduate School Marquette University In Partial Fulfillment of the Requirements for the Degree Master's of Business Administration, Milwaukee, Wisconsin

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