Cigna reminded advisers this week about its commission model announced in March and shared how advisers could use their ‘As Earned’ option in tandem with pendulum renewals to improve long term cash-flow.
The firm’s David Haak, General manager – Distribution, says: “Most Advisers will already understand the compounding effect of pendulum commission – it’s one of the most reliable ways to build a long-term resilient business.
“Now with Cigna, there’s a way you could enhance your use of pendulum commission even further.”
Haak says if an adviser selected the 20R pendulum option with a new Rate for Age life policy with a net annual premium of $1,200, the commission would be:
|
$1,740 up front |
($1,200 api x 145%) |
|
$20 per month from month 2 onward |
(20% of api / 12 months) |
However, he says that if an adviser was to tick 20R and As Earned Commission on the same policy, they would receive:
|
$72.50 in month 1 |
(145% / 2 years is 72.5% of each premium for 24 months) |
|
$92.50 in months 2-24 |
($72.50 from above plus 20% renewal on each premium) Dropping back to 20% renewal from month 25 onwards. |
Haak suggests that if advisers extended the concept over a number of policies, the cash-flow generated “could snow-ball every month”.
“This strategy could smooth out the peaks and troughs in your cash-flow,” he says. “Which means you could be paid the same in January as you would in any other month.
“It can also maintain income levels during an unplanned period of absence from the business, such as ill health, or perhaps a stay in MIQ.”
He says that if an adviser wrote six such policies on As Earned pendulum this month, and six more next month, the following month they’ll be receiving As Earned payments on 12 policies.
“Extending the same six policies per month over 12 months would generate monthly cash-flow of $6,000 for the upcoming two years,” he says.
And speaking in general terms, Haak suggests that adopting this strategy may have the one-off effect of reducing this year’s tax burden.
“You may end up paying the same tax in the end, just not as soon,” he says.
Haak also mentioned the ‘two-year bump’ which he says could also advantage advisers.
“Cigna recalculates As Earned commission payments as the customer goes through their policy anniversary at the beginning of year two,” he says. “This means, on a Rate for Age policy, the Adviser could receive more commission in year two than they did in year one.
See our story: Cigna launches no claw-back option