FIN 502 Chapter Notes - Chapter 11: Insurance Broker, Vehicle Insurance, Home Insurance
30 Nov 2014
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Chapter 11 property, home and automobile insurance. Insurance broker is required to recommend the best solution for client, but high initial payout may be conflict. Insurance brokers earn most of their compensation in year 1 (assuming client holds policy for 3 yrs. ) with small trailer amount in next 4 years. Making agents salaried employees, deferring compensation over life of contract are ways to avoid the conflict. Insurance agent sells whole life policy with face value of ,000,000 and ,000 annual premiums: payout: commission = 25-30% of the premium, plus override = 180% to 220% of commission amount. Override = 200% * commission rate (3,600) = ,200. Managing general agency co-ordinates all testing, guides policy approval and negotiates with insurance companies. Insurance broker often retains 50 - 80% of total commission. Trailer = 2-5% of annual premium also paid in first 3-5 years ( - / yr. )
