A Perfectly Rational World

Katt, Peter C.
October 1994
Journal of Financial Planning;Oct94, Vol. 7 Issue 4, p151
Academic Journal
There are two distinct systems used to market and sell life insurance and another that provides life insurance planning and purchase advice. These are: the traditional commission-driven system, the direct-to-consumers, low-load approach and the free-only life insurance advisor, which is not so much a method for marketing and selling life insurance as it is an approach to life-insurance planning advice and policy analysis. Each system has its strength and weaknesses and there are good reasons for each system to exist. The commission-driven system features life insurance companies paying their salespeople very high commissions, usually 50 to 90 percent of subsequent premiums and 5 to 10 percent of subsequent premiums for another 4 to 9 years. Sales commissions comprise a large part of a policy's acquisition expenses. The commission structure is the linchpin of the life insurance industry. Without the offer of such a high financial reward for successfully completing the sale of a life insurance policy, the industry would have a difficult time recruiting agents and convincing them to perform the distasteful tasks of solicitation and the hard selling of potential buyers.


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