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For a lot of years the state of New York was almost anti social about life insurance. Difficult to the point where a large number of very good life insurance companies that do business in every other state wouldn’t jump through the hoops required in New York.

And consumer unfriendly, oh my gosh. If you went to your cousins in Pennsylvania and decided to buy life insurance there because the options were far wider and better, you would run into a brick wall. If your residence was in New York, a company that didn’t do business there, even though it was completely legal, wouldn’t sell to you for fear of getting caught up in the New York Insurance Regulations. Within the state of New York it was practically not worth the paperwork and process to assist someone who wanted to replace their policy with a new one. It didn’t matter that it was a better policy and a better fit. Between the process and the paperwork it could easily add 2-3 months to the application process.

And, for agents, as if those weren’t enough reasons to steer clear of New York, the state also regulated the amount of compensation companies could pay agents. Those companies that had gone for the business in the Empire State were required not to pay more than 50% first year commission. I know that sounds like plenty, but especially on term life insurance that compensation only comes in the first year. If an agent writes a 20 year term policy for $1000 a year, they make $500 and, if they’re good agents, they service that business for the next 20 years with potentially no other income. A lot of agents who, like me, stay licensed in every state, left New York off their plate for that reason. They could sell the same policy in New Jersey and make 95% of the first year. I chose to hang on with New York simply because I don’t believe you can be in the service business and be compensation driven.

A similar compensation issue occurs outside of New York and it’s really a place where you find out if your life insurance agent is driven by the desire to do the right thing for you, or for his or her own bank account. There are companies that pay extremely generous compensation, sometimes more than 100% of the first year premium, while others pay 75%. Those companies that will go over 100% usually do that on their long term products like 30 year term insurance. They might pay 90% on 20 year term, 75% on 15 year term and 60% on 10 year term. The “others” pay 75% no matter what product you offer a client.

I’ve noted in quite a few posts that the large on line agencies seem to be especially sensitive about the issue of compensation. While none of them will come right out and admit it, most, if not all of them have contracts with one or two companies that pay high compensation and huge bonuses if the agency meets sales goals. I noted just recently that it appeared that Zander Insurance, Dave Ramsey’s insurance poster child, has a contract like that with ING Reliastar. When an agency starts selling insurance from a company who isn’t even in the top ten quotes, there has to be motivation. Back in the old days when I worked for Eterm.com, the agency got 95% on everything it sold for Federal Kemper Life. We literally, as agents, had orders not to sell anything but Kemper unless the client would be declined by Kemper. Because of that business model most of what was sold earned Eterm.com a 40% bonus.

Was Kemper the best priced product out there? They were competitive sometimes, but they were definitely not the best we could do for a client, one of the reasons I parted ways with Eterm.com. But the owner of the agency really liked that 40% bonus and honestly didn’t care if clients found out after the fact that we really weren’t the best deal on the block.

I have seen several large agencies that won’t quote Prudential or Met Life because the pay comparatively low compensation and they don’t do bonuses. I have helped a large number of clients replace what they’ve bought through Selectquote or Zander because they may have been approved at a standard rate for some minor impaired risk when they could get preferred plus rates approved through an agent that would sell Prudential or Met Life. The agencies will claim that’s not the case, but the number of their clients that come to me because they feel they’ve been unfairly treated would lead to another conclusion.

Bottom line. When an agent focuses on compensation they are making objective recommendations to their clients. Any agent, independent or not, who recommends the second best company or the second best product for a customer because that company or product pays more comp ought to remove themselves from the business. If you have any questions or feel like a large agency may have placed you with a company for the wrong reasons, call or email me directly. Let’s talk.