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Curse Those Debit Balances

Posted by Christopher Kuhnen on July 11, 2014

   If you are licensed pre-need insurance agent, you are no doubt familiar with the phrases: Debit Balance, Advanced Commissions and Commission Reserve Funds. Depending on the quality and quantity of insurance you write, you either applaud or curse these phrases.
    I am always amazed at the number of carefree pre-need insurance agents that have no idea how their commission structure operates. I’ve heard them make such comments as, “Why did I not receive all the commission I should have received on this contract?” “Why am I getting these notices that I owe my insurance company money, because I am in a debit situation?” “I stopped writing for that company months ago, yet they are still holding onto my commissions; why can’t I get them paid to me right now?” These are all good questions and they all have a good answer.
    When it comes to receiving a commission payment on a contract issued by your insurance company, you have several options. You can either have your commission paid to you “AS EARNED” or “ADVANCED”. Both have their advantages and drawbacks. Most pre-need insurance agents choose to have their commissions ADVANCED. Although this can afford you a much larger payment at one time, it is not without its prerequisites. No insurance company is going to stay in business, if they pay you a commission and not have a reasonable amount of time to recoup that commission payment by having the policy remain “active and earning” for a certain period of time. That time period is customarily twelve months from the date of policy issue. There are exceptions to this, but we will not delve into those in this column. Therefore, your ADVANCED full commission payment comes with the understanding that you are receiving your payment, provided the insured lives for twelve months from the date of issue. It’s not truly “your money”, until that one year mark is attained.
    Any ADVANCED commission payment comes with stipulations that are clearly outlined in the insurance company’s Agent Appointment, Commission Schedule and Chargeback Policy. Those policies may have clauses similar to:
  • Commissions are not earned on policies which are returned to the Company and voided.
  • The Company will recover an amount equal to the commissions paid or advanced on any policy which, during its first policy year, was 1) surrendered for the policy cash value or 2) for multipay plans, lapsed for nonpayment of premiums due.
  • If the insured dies prior to the first policy anniversary from other than accidental death, the commission will be charged back 100%.
  • If we void or rescind a policy due to contesting a claim on a death the commissions will be charged back 100%.
  • All commission advances constitute indebtedness to the insurance company until all the provisions of the commission advance are met.
  • A Reserve Fund will be created, wherein a percentage of your advanced commissions will be held at the company until a cap has been reached. Commission charge-backs will be withdrawn from the Reserve Fund first. If the Reserve Fund is not available, charge-backs will be taken from my next commission check. I understand and agree that the Reserve Fund percentage and/or cap amount may be changed at any time by the Company.
  • No commission sums will be advanced on applications submitted but not yet issued.
    I strongly recommend you contact your insurance company and learn all the ins and outs of their commission schedule and chargeback policy. Once you clearly understand it, you will have many of your questions answered.
    A Reserve Fund is a smart thing for you to set-up with your insurance company. Typical Reserve Fund accounts have a cap of $5,000 and are infused with cash by having 25%, 30% or 35% of all gross commissions earned, placed into the fund as they are earned. This fund is there for your protection. If you do not have such a fund, and your issued business does not stay on the books for twelve months or more, you will find yourself having to repay the insurance company hundreds and/or thousands of dollars. As long as all the insurance business you write meets the insurance company commission requirements, you have nothing to worry about. It’s your money and your pre-need insurance company will pay it to you.
    Have more questions? Feel free to contact me anytime at cpkuhnen@gmail.com.

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