Can I get clarification please ...IMO's, commission, and residuals

[Diana2024]

I'm newly licensed (L&H) and new to the insurance industry. I've been speaking with a few IMO's and I've been learning as I go and with the help of this forum.

I would like some clarification on how IMO's make their money and I have some questions as well. Please correct/clarify any information that is incorrect.

I was told that IMO's are essentially a wholesaler for the carrier and make their money directly from their carriers based on what the agent/producer sells.

Does an IMO also make money on the residuals or only the first year? Who sets the commission amounts and residual amounts ... the IMO, the carrier, or both of them together? I was under the impression that the carrier sets the commission and residual amounts for the agent/producer since they're paying the agent/producer directly. However, I'm beginning to question this and it appears that perhaps the IMO sets the commission and residual rates ... is that correct? So, if that's correct, and as an example, if the carrier pays 105% commission but the IMO commission grid states 90% for first year ... does that mean the IMO is getting 15% from the carrier? Does the same apply to residuals?

I have some commission grids that show residuals anywhere from 2.5%-3.65% for years 2-10 residual ... and some pay for 11+ years and some only pay up to year 10, depending on the carrier, of course. However, my hubs has a friend that's an insurance agent and the residuals are higher ... lowest is at about 2.25% for years 11+ and highest is at about 12% for years 2-5 and lower for years 6-10 and lowest for years 11+ but some are still higher at 11+ than some of the commission grids I have. This is a different insurance carrier than the carriers I have commission grids for ... I was just surprised to see the difference is pretty significant.

So, I'm not sure if part of the reason for the difference is how the commission and residual is set by each IMO? Or if going directly through the carrier is the reason? Who sets the commission/residual amounts?

I'd appreciate your feedback to help me understand how this works. Again, I'm new to this industry and still trying to learn.

 

[Newby]

Each IMO sets their own commission levels for new agents. Some will be 50% on a product and that exact same product will pay 120% to new agents at a different IMO.
Usually the ones that pay the least commission have pyramid style recruiters that all take a piece of the agent commissions. It's common to get better training and lead programs at the ones that pay higher commission levels not the lower ones.
The thing to keep in mind is all insurance companies budget 200% of the annual premium to get the policies marketed and sold. In other words the first TWO years of premium are budgeted to sales costs. Not all of that is commission. Some is office cost, brochures, agent service people, etc. But 150% or higher is commonly dedicated to commissions. That is how YOU the new agent can make 120% of the commission with most Final Expense policies and I (the IMO) still makes a healthy margin to train you and support you with good lead programs.
If you have further questions (everyone does) feel free to call us anytime at FexContracting. The phone number and a lot more info is on the FexContracting website.

 

[DonP]

I'm newly licensed (L&H) and new to the insurance industry. I've been speaking with a few IMO's and I've been learning as I go and with the help of this forum.

I would like some clarification on how IMO's make their money and I have some questions as well. Please correct/clarify any information that is incorrect.

I was told that IMO's are essentially a wholesaler for the carrier and make their money directly from their carriers based on what the agent/producer sells.

Does an IMO also make money on the residuals or only the first year? Who sets the commission amounts and residual amounts ... the IMO, the carrier, or both of them together? I was under the impression that the carrier sets the commission and residual amounts for the agent/producer since they're paying the agent/producer directly. However, I'm beginning to question this and it appears that perhaps the IMO sets the commission and residual rates ... is that correct? So, if that's correct, and as an example, if the carrier pays 105% commission but the IMO commission grid states 90% for first year ... does that mean the IMO is getting 15% from the carrier? Does the same apply to residuals?

I have some commission grids that show residuals anywhere from 2.5%-3.65% for years 2-10 residual ... and some pay for 11+ years and some only pay up to year 10, depending on the carrier, of course. However, my hubs has a friend that's an insurance agent and the residuals are higher ... lowest is at about 2.25% for years 11+ and highest is at about 12% for years 2-5 and lower for years 6-10 and lowest for years 11+ but some are still higher at 11+ than some of the commission grids I have. This is a different insurance carrier than the carriers I have commission grids for ... I was just surprised to see the difference is pretty significant.

So, I'm not sure if part of the reason for the difference is how the commission and residual is set by each IMO? Or if going directly through the carrier is the reason? Who sets the commission/residual amounts?

I'd appreciate your feedback to help me understand how this works. Again, I'm new to this industry and still trying to learn.

The person directly above you sets the commission . Example most imo/fmo's at 150%-155% witu a majority of carriers . If your directly under the imo you should never make less than 120% on 90% of contracts . If you're a pretty good producer you should be at 130% . But what few people know is all 120% or 130% contracts not the same .Some carriers allow your imo to vary your renewals on these contracts . So one imo might be 120% and 5% renewals and the other has his 120% at 7% renewals . Your imo at 150% is at 9-10% on that company . So he's making anywere from 2-4% on your renewals as overrides . A outfit that does $20 mil a yr thats huge .Lets say his outfit does $20 mil a yr for 4 straight yrs . That $20 mil x 3 is $60 mil if you had 100% persistency. Let's grade that at 65% in yr 4 . That's $39 million of premium getting let's say 2% avg override .Thats almost $800 k a yr on the back end . From end at let's say 15% avg override after exp's and having some recruiters at 140-145% . Thats $3 million . $20 mil yearly a very mid size imo . After 5 yrs that's $4 mil a yr . It's your job to narrow that override as much as possible . Insurance is the greatest overriding System on earth . The only reason a portion of it not considered a mlm is because most people sell and some of the better IMO's don't have multiple recruiters under them

 

[Diana2024]

@Newby and @DonP Is it okay for me to post the commission grids here that I was given? I don't want to do anything that I'm not supposed to do but I would like some feedback on the commissions and residuals.

 

[Diana2024]

Each IMO sets their own commission levels for new agents. Some will be 50% on a product and that exact same product will pay 120% to new agents at a different IMO.
Usually the ones that pay the least commission have pyramid style recruiters that all take a piece of the agent commissions. It's common to get better training and lead programs at the ones that pay higher commission levels not the lower ones.
The thing to keep in mind is all insurance companies budget 200% of the annual premium to get the policies marketed and sold. In other words the first TWO years of premium are budgeted to sales costs. Not all of that is commission. Some is office cost, brochures, agent service people, etc. But 150% or higher is commonly dedicated to commissions. That is how YOU the new agent can make 120% of the commission with most Final Expense policies and I (the IMO) still makes a healthy margin to train you and support you with good lead programs.
If you have further questions (everyone does) feel free to call us anytime at FexContracting. The phone number and a lot more info is on the FexContracting website.

I called and spoke with someone at FexContracting about a month ago. Unfortunately, I don't remember his name. He was helpful but felt that I would likely not want to be with Fex due to the clientele/demographic that Fex caters to. But he did take the time to answer my questions. I just didn't have these questions to ask at that time. I appreciate your feedback ... and I tagged you in a separate post here as well with another question.

 

[DonP]

@Newby and @DonP Is it okay for me to post the commission grids here that I was given? I don't want to do anything that I'm not supposed to do but I would like some feedback on the commissions and residuals.

Yes post it

 

[Newby]

I called and spoke with someone at FexContracting about a month ago. Unfortunately, I don't remember his name. He was helpful but felt that I would likely not want to be with Fex due to the clientele/demographic that Fex caters to. But he did take the time to answer my questions. I just didn't have these questions to ask at that time. I appreciate your feedback ... and I tagged you in a separate post here as well with another question.

You are not alone. Not everyone is cut out for Final Expense sales. It's a great place to be if it's right for you. It surprises me how many women do great at it.
You likely spoke with me. I try to help all agents regardless if they are a fit with us or not.

 

[Newby]

@Newby and @DonP Is it okay for me to post the commission grids here that I was given? I don't want to do anything that I'm not supposed to do but I would like some feedback on the commissions and residuals.

Yes. We openly talk about commission levels on this forum.

 

[GoPokes]

People sometimes call it a "pyramid" but it is probably just a "triangle" like in most business models... when you go buy a burger for lunch, a part of that goes to the salary of some executives somewhere, and part of it goes to the franchise owner, and part of it pays the guy who made the sandwich.

"Pyramid" business models typically have a structure where recruiting is the primary means of growing and building a business. These do exist in the insurance space... so the feedback you get on here will help you identify them.

"Triangle" business models, are a hierarchy, with people at the top, often the founder, creating a business, with people under them. The people at these levels above the bottom, are paid a percentage of the total sales commission. You can get a good deal or a bad deal in this model.

 

[Newby]

People sometimes call it a "pyramid" but it is probably just a "triangle" like in most business models... when you go buy a burger for lunch, a part of that goes to the salary of some executives somewhere, and part of it goes to the franchise owner, and part of it pays the guy who made the sandwich.

"Pyramid" business models typically have a structure where recruiting is the primary means of growing and building a business. These do exist in the insurance space... so the feedback you get on here will help you identify them.

"Triangle" business models, are a hierarchy, with people at the top, often the founder, creating a business, with people under them. The people at these levels above the bottom, are paid a percentage of the total sales commission. You can get a good deal or a bad deal in this model.

When we say pyramid style agency we mean agencies where beginner level agents are allowed and even encouraged to recruit other agents under them.