Question
A life insurance company wants to incentivize their agents to sell to clients only insurance policies that they will not cancel for many years. Management
A life insurance company wants to incentivize their agents to sell to clients only insurance policies that they will not cancel for many years. Management has dreamed up the following trailing commission structure: For each policy sold, the agent will receive $$350 per year in arrears for the first 10 years; after that, the annual trailing commission will be reduced by 27.0% each year relative to the year before in perpetuity. What is the value of the commission to the agent at the time of the sale (discount cash flows at 8.0%)?
$$ . (Round to the nearest dollar.)
From experience, the agent knows that most customers cancel their policies within the first years or keep them for a very long time. Thus, he feels that a discount rate of % would be more suitable for the first years.
What is the personal valuation of the agent for his trailing commission? . (Round to the nearest dollar.)
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