How to create your annuity through renewal premiums?

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Having a regular income, even when you don’t work for it, is like a dream come true. You put your hard-earned money to work to create an annuity which gives you a continuous flow of income. Alternatively, a career in insurance also helps many individuals to create their own source of an annuity through insurance renewals. Do you know how?

 

Before understanding how insurance renewals create annuity, let us first understand what annuity is all about.

 

What is annuity?

 

The Oxford Dictionary defines annuity to be ‘a fixed sum of money paid to someone each year, typically, for the rest of their life’.

 

An annuity is, therefore, given importance as it creates a regular flow of income. Individuals invest in avenues with a view to creating a regular annuity after they retire so that they get a source of funds for meeting their lifestyle expenses. While there are investment avenues which create annuity, what if your life insurance sales do the same for you? Have you considered the prospect?

 

Insurance sales and annuity creation

 

When you sell insurance policies, you get a commission on the premium you collect. This commission is not paid to you only once. Every time the policy comes up for renewals and your clients pay the renewal premium, you get a renewal commission too. Renewal commission is, thus, the commission you earn on the renewal premiums of the existing insurance plans that you sold. These renewal commissions help you create an annuity income. Here’s how–

 

  • Your clients renew their insurance plans and pay the renewal premium
  • You get a renewal commission on the premiums that they pay
  • In case of life insurance policies, these commissions accrue for a long-term as life insurance plans are long-term plans

 

Let’s understand with the help of an example–

 

Suppose you sell one life insurance plan on 1st January 2018. The term of the plan is 25 years and the premium that you collect is INR 20, 000.

 

Every year, when the policy is renewed on 1st January and INR 20, 000 is paid as renewal premium, you can earn up to 5% of the premium as renewal commission. Thus, you would be able to earn INR 1000 every year for 25 years on 1st January as the renewal commission.

 

Now, say that you sell an average of at least 10 policies on one month. So, in January 2018 your business stood as below–

 

Date of sale Premium collected
1st JanuaryINR 20,000
4th JanuaryINR 15,000
7th JanuaryINR 20,000
10th JanuaryINR 12,000
13th JanuaryINR 18,000
16th JanuaryINR 22,000
19th JanuaryINR 24,000
22nd JanuaryINR 30,000
25th JanuaryINR 10,000
28th JanuaryINR 15,000

 

Fig: Example Table

 

Your renewal commissions on these policies would be as follows (assuming a rate of as low as even 5%) would be:

 

Date when the renewal premium is paidRenewal premium earned
1st JanuaryINR 1000
4th JanuaryINR 750
7th JanuaryINR 1000
10th JanuaryINR 600
13th JanuaryINR 3600
16th JanuaryINR 1100
19th JanuaryINR 1200
22nd JanuaryINR 1500
25th JanuaryINR 500
28th JanuaryINR 750

 

Fig: Example Table

 

Thus, from 1st January 2019 onwards, the renewal commission would become an annuity earning for you for as long as the insurance policies continue. Since you sold 10 plans in a month, you get 10 annuity pay-outs. If you increase the sale, the annuity pay-outs would also increase. In the month of January 2019 alone you make a total of INR 12, 000 and that too without putting in an effort to sell more insurance plans. If you continue selling more, imagine the limit up to which you can earn!

 

Though insurance renewals promise you a good and continuous source of income, here are some tips to ensure that your income remains continuous –

 

  • Maintain contact with your clients even after the sale is done. By being in touch with your customers you can give them renewal reminders so that the renewal premiums are paid and your commission is credited to you.
  • Provide your clients with efficient post-sale services. This would not only strengthen the trust your client has placed in you, but it would also motivate your clients to pay the renewal premiums and continue with the policy. Besides giving renewal reminders, try and collect the renewal premiums yourself so that the plan is renewed.
  • If your clients want to stop premium payments, make them understand the drawbacks of their decision. Educate them about the long-term nature of life insurance policies. Convince them that the full benefits of the plan can only be enjoyed if the policy is continued without a break.
  • There are some mistakes which many agents make and fail to sell insurance plans. For instance, they can’t handle objections or position the product wrong. Keep your distance from these mistakes. If you want to know what the common mistakes are, read avoid these 4 ways of failing to sell your next life insurance product.

 

So, follow these tips and create your very own annuity through life insurance renewals. It is simple, effective and also promises you long-term incomes.

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