Ugly Side of Upfront Commissions - The No Pay Rate

It's not something that you expect to happen or even plan for.  You hear about it on occasion but you never think its going to apply to you, especially in your first year.  Inevitable there will be a policy holder or a business group that defaults and doesn't pay their invoices for some reason or another.  If a business has 3 out standing invoices, the policies for every employee in that group lapses and the account is closed.  Not good when something happens and you make a claim cause the policy lapsed.

I know some of you are thinking, "Isn't it against the law to have employee premiums pre-taxed and deducted from payroll and not pay the invoices?"  Yes, it is IF the account is a payroll account with W2 employees.  1099's are not payroll deducted. It is up to the owner of the group to collect premiums to pay the invoices BUT if Mr. or Mrs. Owner collected and did not pay the invoices, yes, that is also against the law....but that will be another topic.

Back to this thing call the No Pay Rate. There are certain incentives to help drive agents to produce and go after new businesses.  As agents hit certain levels, there are monetary bonuses also attached to them.  However, if you have a no pay rate that is more than 13% of your business, you do not get to collect those bonuses.  You also get deducted on your monthly earnings. 

Huh?  What do you mean?  Well, when I close a group or sign up individual policy holders, I get almost half of my first year's commission upfront, which is almost 50% of my total commission. Sound great right?  It is, but when you have accounts that default or policy holders that stop paying before their 1st year is up, your upfront commissions are deducted from your monthly statements.  For example, if I have a business group of 8 employees and for some reason they stopped paying their invoice 3 months after their policies went in to effect, the $1200 I received upfront will not collected from my monthly statements (as earned commission on current policy premiums).  If I'm only pulling in $160 in my monthly statement, I'll be in the negative for at least 9 months. 😖  While I do have the option when setting up an account to switching my commissions to "As Earned", meaning I get my commission as invoices are paid, most often I choose the upfront commission.  Why?  Because I have a mortgage and bills to pay.

Believe me when I say that have a vested interest in my clients paying their invoices because I don't want their coverage to lapse and of a sudden something happens but they can't make a claim because they were just one day too late of reinstating their policy.  Yes, of course, it also a huge negative impact on my income and it may also keep me from receiving monetary bonuses when I hit certain levels.  Some of those bonuses would come in handy for me!  When you've depleted your savings, your retirement account and find that you are now having to borrow money from your parents....every penny counts.

Being 1099 Aflac agent is not for the faint of heart.  But I do it because I believe in the products, I believe that I am helping people prepare for the unexpected, and I enjoy the freedoms that I wouldn't have with a 9 to 5 job without having to suffer consequences.  You have to really want it and believe in what your doing otherwise things like clients not paying their invoice, employees leaving a job and not wanting to take their policies with them can really take its toll.  Honestly there days when I just want to crawl back in to bed when review the status of my groups or I get an email from an employer who tells me that they lost another employee.  It makes me want crawl back under the covers and pretend I didn't see or hear anything.  Just take me back to the land of unicorns and cotton candy.  😀  Even with things like this looming over my head, I still don't want to be someone else's employee again.  I'll take my chances being an independent agent, even with all of it's ups and downs.  Despite the unpredictable highs and lows of my bank account, I'm much happier than I was a few years ago.  Hard to believe when I tell my story but it's true.