The Power Of Renewals

It used to be that people got into the life insurance business because of the renewals. “Mailbox money,” as it was sometimes called, helped smooth out the ups and downs of commissions and ensured that the agent wasn’t starting each year at square one. Renewals also gave the agent a means of funding his or her retirement, either as a renewal stream of income or a basis for selling the practice to another agent. For better or worse, the trend over the last 20 years has been toward heaped commissions, where almost all of the commission is paid in year one and renewal commissions are nominal at best. The result of this focus on the “urgency of now” is that the Power of Renewals has been overshadowed.

The result of this gradual transition is that renewals are looked at as a “nice to have,” rather than an absolute necessity, which just does not make sense. Think of the amount of time, energy and hard work that goes into placing a life insurance policy inforce. The prospecting, the client meetings, shepherding the case (and the client) through underwriting and then reminding them why what they are doing is so important. And that’s just the beginning. Then comes the servicing, the client reviews and reminding them why what they are doing is so important. All of that takes time, energy and hard work as well. Which brings us back to the original point about renewals. With all of the work that is done on the front end and all of the work that will be done when the policy is inforce, a renewal shouldn’t be a “nice to have,” it should be an absolute requirement. Is all of that work done just for the first premium or do you earn every premium that is paid? I think it is the latter. If a client pays a premium, the agent should get paid a commission that matters.

I said before that the trend has been toward heaped commissions, but not for everyone. There is one product that still recognizes the Power of Renewals–participating whole life. Renewal commissions in many participating whole life products range from two to four times what many UL and IUL contracts pay in the first ten years, while paying the same first-year commission. What does that mean in actual dollars? Potentially a lot. Let’s take an agent at a 90 percent contract who writes $100,000 in paid target premium per year. His first year commission is $90,000 each year, but what about the renewals? In a participating whole life policy with a 5.5 percent renewal (yes, this does exist!), the total renewal commission over ten years is $222,750 and the renewals paid in year 10 alone are almost $45,000. In a UL or an IUL that pays a two percent commission, the total renewal commission over ten years is $81,000 and the renewals paid in year 10 alone are $16,200. Which would you rather have? That is the Power of Renewals.

In addition to the dollars, another benefit of a good renewal stream is the flexibility and the peace of mind that they can provide to your practice. Everyone wants to grow their practice, get more clients and make more money, but it’s usually not that simple. Growth requires capital to invest in the business, something that is not always readily available. In the previous example, the difference in renewals in years eight through 10 is more than $22,000, $25,000 and $28,000, respectively. What could that be used for? Hire a part-time employee? Move to a bigger office? Invest in a better CRM system? All are possibilities when there is a stream of renewals.

If 2020 taught us anything, it is that peace of mind is important and can be fleeting. When the world shut down, our business slowed. Seminars were on hold. Client meetings were tough. Underwriting requirements were harder to get, so the business already submitted slowed as well. As our industry always does we found a way, but when prospecting, meetings and underwriting slow, so does revenue. And when revenue slows, peace of mind can take a holiday. Renewals would not have solved the problems that we faced last year, but they sure could have brought some peace of mind. In the previous example, the total renewals for participating whole life in years eight through 10 were almost $35,000, $40,000 and $45,000, respectively. In a year where top line revenue took a hit, would that have helped calm the nerves?

Renewals are not a “nice to have.” They should be an essential part of your business. A good, producing agent can build up a healthy stream of renewals in less time than you think. For that agent, January doesn’t mean starting from scratch, it means adding to an annuity stream of income. One that they can count on year after year. If you would like to take advantage of the Power of Renewals, all you have to do is take a new look at an old friend–participating whole life. Happy selling!

Luke Cosme is senior vice president, chief sales and marketing officer at Mutual Trust Insurance Company, A Pan-American Life Insurance Group Stock Company, where he manages the company's distribution and sales development and support efforts. Cosme joined Mutual Trust in February 2014 after serving for a decade as sales vice president at North American Company for Life and Health, where he was responsible for the recruitment and development of MGA relationships, sales strategies and case placement.

Cosme started his career at North American in 1997 after graduating from the University of Illinois at Urbana-Champaign, where he majored in economics. At North American, he held positions as sales director, financial institutions, and worked in client services before being promoted to sales vice president in 2004.

Cosme can be reached at Mutual Trust Insurance Company, 1200 Jorie Boulevard, Oak Brook, IL 60523. Telephone: 800-323-7320, ext. 5300. Email: cosmel@mutualtrust.com.