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Adequacy - Life Insurance
A measure used to calculate the sum of Life insurance needed to cover an employee's lost future earnings. To get this sum, determine the average annual earned income a family is to receive in the future by the wage earner; the number of years he/she is planning to work; and the interest rate for computing the present value of the average annual earned income meant for the family.
Insurance Industry News from ProgramBusiness.com
Sales or Profits?During a recent presentation, I asked hundreds of audience members “What is your goal – to make a sale or a profit?”. The nearly unanimous answer was, “To make a profit.”
This is the logical response—but most often, that’s not what actually happens. In reality, most agencies set their sights on making the sale then cross their fingers that profits will follow. Sales, not profits, are almost always the goal in agencies.
Studies have shown this is true in most sales organizations. A study reported years ago by the Wall Street Journal showed that salespeople preferred sales over profits. A more recent study from the Wharton School shows that in studies going back to 1959, business students and CEO’s preferred market share (sales) over profits. In fact, one survey found, 90% chose gaining market share over any other goal!
It is true that sales are required to make profits, but this does not mean all sales will be profitable. The Wharton study also showed conclusively that firms that focus on market share have worse profitability than those that focus on factors that drive profits. Look at the auto companies. Market share has been the focus at both GM and Ford for decades. Toyota focuses on building good cars and lets market share take care of itself. The results speak for themselves.
Consider publicly traded brokers’ profit margins as another example. Their results show high growth, but their profit margins (as measured by profit available to shareholders) only averaged 11% in 2006 versus industry averages of 11.6% per the 2006 GPS Survey, published by the National Alliance Research Academy, and 11.7% according to the February 2007 Hales Report (note: this includes all the extra expenses and bonuses run though independent agencies, so real profit available to shareholders was much higher). Additionally, if the brokers amortized the full cost of all their acquisitions, like privately held agencies do, the brokers' profit margins would be materially reduced.
The Best Practices Study shows that agencies growing quickly, i.e. growing sales over attention to profit, are significantly less profitable. I have seen many small, even tiny agencies, earn much more profit, especially much more profit per owner, than big agencies.
This is a good, logical reason for focusing on profits, but too many agents are driven by the thrill of making a sale, of beating a competitor. The sale provides such a big rush that it supersedes logic.
Since focusing on profits, rather than sales seems to be the logical goal, the focus on sales sounds illogical and irrational—and in fact, it is. New research is showing that in this case, irrational is the norm. Economists and neurologists are showing through advanced brain scans and statistical studies that everyone is irrational when it comes to making decisions involving economics. They are also showing that because humans are irrational, realizing how we make such decisions may be where real opportunity exists.
The smartest man I’ve ever met shared with me a secret about his success. He said that beating the competition is easy if you can keep quiet about the sales you’ve won. He made more sales than any person I have ever known, but few people were aware of his success as a salesman. He proved to me that the contest is really not between making sales and making profits. Rather, it is between a building a bigger ego and making a profit; and this battle may be where the true irrationality lies.
I was once giving a class on the difference between sales and profits when a young producer approached me during the break. He asked what he should do because if he did not make unprofitable sales, his competitors would. I asked him if he thought those same sales would be unprofitable to his competitors, and he said yes. So, I asked if his competitors made enough unprofitable sales, courtesy of you not trying
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