You are reading a page from Life Insurance as a Life Work, by Hugh Hart
(1926)
Part of the American Term Life Insurance History Project
Term Life Insurance
CHAPTER VI
THE FINANCIAL OPPORTUNITY
Money brings honor, friends, conquest, and realms.
—JOHN MILTON.
What financial opportunity does life in-
surance selling offer*? The life insurance
salesman receives his income in the form of
commissions on premiums paid for policies
which he sells. These commissions are of
two kinds, first-year and renewal commis-
sions. It is customary to pay a commission
on the first-year premium ranging from
fifty per cent. downward, but averaging
about forty per cent. The renewal commis-
sions are paid generally for a period of nine
years, at the rate of about five per cent. on
the premiums that are paid after the first
year.
If you were a clerk in a store and sold
$50 worth of goods per day, your salary
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THE FINANCIAL OPPORTUNITY
would probably not exceed $100 per month.
Suppose that you sold life insurance, the
premiums on which amounted to $50 per
day, or a total of $15,000 per annum. With
an average first commission of forty per
cent. you would earn $20 per day, or $500
per month, or $6,000 for the year. But this
is only part of your compensation for your
year's work. If all the business you sold
during the first year was renewed the sec-
ond year, you would make $750 in renewal
commissions, on a five per cent. basis, and,
if all the policies were kept in force, you
would continue to earn the same amount un-
til a total of nine renewal commissions had
been paid to you.
Of course, some part of your business will
lapse. The amount of this lapsation will
depend upon several factors, among them,
the character of the clients to whom you
sell policies, and the intelligence you use in
adapting these policies to their particular
needs; also it will depend upon the care
with which you cultivate your policyholders
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LIFE INSURANCE AS A LIFE WORK
during succeeding years. We will estimate
the lapsation for the ten-year period at
thirty-three and one third per cent. of the
business originally sold; which means that
you would have an average of $10,000 in
premiums running through the entire nine-
year renewal period after deducting lapsed
policies from your total business. Thus
you would earn a renewal income of $500
per annum for nine years, or a total of
$4,500, in addition to the $6,000 paid you in
first-year commissions. Your year's work,
therefore, if the premiums on the life insur-
ance you sold amounted to $50 per day,
would net you $500 per month during the
first year and a royalty over a period of nine
years of $500 per year, or a total income of
$10,500, the renewals being computed not on
a "present value" basis, but on the basis of
the total amount to be paid you in nine
years.
Consider the income you could earn by
selling insurance in the light of the state-
ment taken from the Manager's Manual
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DIVISIONS-OP-INCOME-RECEIVERS
SOURCES-'INCOME-OF THE-UNITEO-rrATES'-NATX BUREAU OF- ECONOMIC- RBtSARCH- -tW
LIFE INSURANCE AS A LIFE WORK
of the Life Insurance Sales Research Bu-
reau of Hartford, that ninety-seven and
seven-tenths per cent. of all incomes in the
United States are under five thousand
dollars.
A study of these figures will give you a
comparative idea of the financial advantage
offered by life underwriting, for you can
see that sales on which the premiums
amounted to $50 a day would place you on
a higher level, as far as earnings were con-
cerned, than ninety-seven and seven-tenths
per cent. of your fellow Americans.
The following table shows the income pro-
duced by life insurance sales, the average
daily premiums on which are from $10 to
$250. In computing the income it is as-
sumed that the agent's earnings include a
first commission of forty per cent. and nine
renewal commissions of five per cent. on
policies which are kept in force. The fig-
ures showing the total income, however,
are based on an assumed lapsation ratio
of thirty-three and one third per cent.
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THE FINANCIAL OPPORTUNITY
of the original amount of insurance sold.
1 Renewal Commissions not computed on a "Present Value"
basis.
The Life Insurance Sales Research Bu-
reau has worked out the following table
which shows the first five years' income of
an agent writing $125,000 in the first year
and increasing the amount hy $25,000 a year
until $200,000 is written each year. The
figures are based on the assumption that the
average premium is $35 per year for $1,000
insurance, the commission on new business
forty per cent., plus nine renewals at five per
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THE FINANCIAL OPPORTUNITY
cent., with a ten per cent. termination each
year:
Mr. Benjamin F. Shapro of Oakland,
California, has prepared a life insurance
chart, based upon what he considers the
minimum amount that a man should write
in order to make a living by selling life in-
surance; namely, $160,000 a year, or $5,760
in premiums. Mr. Shapro in his table
does not take into consideration the fact
that a certain number of policies may lapse
and, therefore, a proper deduction should be
made for lapsation. He shows, however,
that by living on the first year's commis-
sions, a young man, starting at age 34 and
saving his renewal commissions, using them
to purchase an income bond,1 at the age of
72 will have saved $156,109.24.
There is a great advantage in having part
of your compensation paid you in the form
of future income. A few years ago, the
statement was made that of one hundred
i The income bond is a type of life income contract offered
by several life insurance companies. The premiums quoted
are those of the company which Mr. Shapro represents.
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UFE INSUBAITCE RENEWAL CHART
BASIS: $160,000 BUSINESS
$5,760 DEPOSITS
RENEWAL EATE: 5% PEB ANNUM (NINE RENEWALS)
Chart by B. F. Shapro ol The Equitable Lite Assurance Society of the United States.
LIFE INSURANCE AS A LIFE WORK
young men starting life at age twenty-five,
with every promise of a successful career
ahead of them, when forty years had
passed:
1 was rich.
4 had incomes from investments suf-
ficient to live on.
5 were able to earn a living through
their own efforts.
36 were dead.
54 were dependent on public or private
charity.
Although these statistics have been criti-
cised and are probably not entirely accu-
rate, nevertheless they give an indication
of the alarming trend toward old-age de-
pendency.
A life underwriter in one of our large
Western cities from time to time runs an
advertisement in which he offers fifty dol-
lars cash to any person who will supply him
with a list of fifty men, sixty-five years of
age, who are not dependent. He has never
had to pay the reward.
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THE FINANCIAL OPPORTUNITY
Few men and fewer women know how to
invest money successfully. At a large con-
vention, one of the speakers asked all those
in the audience who had invested money and
never had a loss to hold up their hands.
Not one hand was raised.
The renewal income, following for nine
years after the life underwriter produces
the business, constitutes the most allur-
ing financial feature of life underwriting.
There is no need for a life underwriter to
fear old-age dependence if he will live
within the income that is paid him in the
form of first-year commissions and will
save his renewals for the contingencies of
the future.
Life underwriting will also enable you to
capitalize certain assets that you possess,
which are, strictly speaking, non-financial.
Eight years ago, a young man, twenty-three
years of age, came to the writer's office to
consider entering the life insurance busi-
ness. He had had no previous experience.
He had very little money. We said to him
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LIFE INSURANCE AS A LIFE WORK
in effect: "Our company will enter into a
partnership arrangement with you, and each
of us will make certain contributions to the
capital stock of this partnership." We
then made an outline, listing the items of
which the partnership capital consisted:
CAPITAL
You Supply
These Assets
We Supply
These Assets
(1) Energy
(2) Personality
(3) Ambition
(4) Character
(5) Thinking capac-
ity
(6) Acquaintance
(7) Experience
(8) Hard work
(1) Life insurance
company
(2) Training
(3) Literature
(4) Advertising
(5) Sales plans
(6) License
(7) Counsel
(8) Good-will
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THE FINANCIAL OPPORTUNITY
He entered the so-called partnership
which, by employing the assets intelligently,
produced profits from the very start. His
earnings at the present time are at the rate
of $25,000 per year.
What then is this relationship or this com-
bination of assets worth'? In hoping to
earn $25,000 a year, any merchant would
have to make an investment of at least
$250,000. In fact, a very able merchant
recently said that if he could make eight
per cent. on the amount of capital he
had invested in his merchandise, he would
feel he was doing exceedingly well. The
non-financial capital supplied by this young
man, plus the same character of capital
supplied by us to complete the partner-
ship, are worth the equivalent of ten per
cent. on an invested capital of $250,000,
if earnings constitute the test of capital
values. By a careful study of the elements
which compose this combination of assets,
you may obtain some idea of what the cap-
ital this young man contributed was worth,
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LIFE INSURANCE AS A LIFE WORK
and also the value of the capital which we
supplied. It might be objected that if
these assets do not produce earnings, they
are practically worthless. That is true, but
do we not apply the test of earnings to
every other business enterpriser
The manifold needs for life insurance
produced by modern conditions have vastly
increased the opportunities for money-
making in life underwriting.
Within recent years there has come about
a recognition on the part of the business
community that the brains of an organiza-
tion should be insured just as property is
protected against loss by fire. Corpora-
tions are, therefore, taking large amounts of
life insurance for the benefit of the company
on the lives of executives or important em-
ployees. Also partners are protecting their
business interests by carrying sufficient in-
surance on the various members of the firm
to enable the survivors to buy out the interest
of an associate who has died. Bankers and
other creditors are recognizing the impor-
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THE FINANCIAL OPPORTUNITY
tance of having debtors insure their lives so
that even if death should intervene, their ob-
ligations may be met.
The inheritance and estate taxes imposed
by the state and federal governments on the
estates of men of wealth have rendered life
insurance imperative if the estate so taxed
is to be preserved intact. The amount of
taxes which, under present rulings, would
be levied by the state and federal govern-
ments at the death of the owner can be
computed .in advance, and life insurance
policies to cover the taxes should be carried.
Death, which causes the taxes to fall due,
will then produce the life insurance revenue
with which to pay them.
Employers are insuring groups of their
employees under policies of group insur-
ance, which is a type of insurance that has
developed within recent years.
Those who are charitably inclined use
life insurance as a satisfactory means of
making bequests to their favorite charities
or benevolent institutions. This field offers
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LIFE INSURANCE AS A LIFE WORK
a great future, for more and more are gen-
erous men and women coming to realize the
value of life insurance as a means of mak-
ing sure that their wishes in regard to be-
quests will be carried out.
Life insurance to guarantee the education
of children, to pay off mortgages, to provide
monthly incomes for dependents, to furnish
an income for old age, or, arranged accord-
ing to a definite program to cover various
financial needs, enables a man to make sure
that his plans for his family may be car-
ried out even if he should die before their
completion.
When thinking over the financial oppor-
tunities offered by life underwriting, we
must take into consideration the fact that
living standards in America have risen in
recent years to a vastly higher plane, re-
quiring a far greater amount of money to
maintain a home than ever before. What
constituted an adequate amount of life in-
surance a few years ago to provide for
family expenses on the old scale of living,
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THE FINANCIAL OPPORTUNITY
is usually now pitifully inadequate. Larger
and larger amounts of life insurance must,
therefore, be carried by the heads of fam-
ilies if they wish their families to live ac-
cording to the standards to which they have
become accustomed.
When we recognize that every man and
every woman who is in good health and able
to pay a premium is a prospect for life in-
surance, we begin to realize the financial
opportunities of life insurance salesman-
ship. The life insurance salesman is like a
man seeking apples, who walks constantly
through an apple orchard where hundreds
of thousands of trees are loaded with apples.
These apples will not drop into his hands.
He must shake them down. Ofttimes he
must exert great effort to obtain them, but
the apples are there in such vast and ex-
haustless quantities that his greatest con-
cern should be to lose as little time as pos-
sible in obtaining his proper share.
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