What are renewals? Explained like a subscription you sold once

No. 01The subscription you already understand

In shortYou sign someone up once. Every month they keep paying, a little comes to you. Cancel, and it stops.

Imagine a streaming service with an odd deal for the people who sign up new subscribers. You talk a friend into the service once. Every month their subscription stays active, the service sends you a small cut. Not much. Make the numbers up with us: three dollars a month per active subscriber.

One friend is pocket change. But you do not sign up one friend. Over a year you sign up 100 people. Some cancel after a month, some after a show ends, and by the next year 80 are still paying. Eighty times three dollars is $240 a month, for work you did last year.

Then you sign up another 100. The ones who stay stack on top of the first group. You never stop working, but part of each month’s money is now coming from subscriptions you sold a long time ago. That stack is the thing.

No. 02Now the insurance version

In shortThe subscription is a life insurance policy. The cut is 1 to 5 percent of the premium, every year the client keeps paying, for as long as your contract says it is yours.

Swap the pieces. The subscription is a life insurance policy. The monthly fee is the premium, the money the client pays to keep the policy; in our example it is $1,200 a year, paid at $100 a month. The small cut is the renewal commission, paid on premiums from the second policy year on, for as long as the policy stays in force and your contract says the renewal is yours.¹

The cut is small, and the published numbers agree on that. One agency recruiter’s table puts term life renewals at 2 to 5 percent in years two through ten. A trade magazine says renewal rates “drop significantly to 1% to 2%.” A licensed agent’s guide for consumers gives 2 to 10 percent across all kinds of life insurance. We use 3 percent. Three percent of $1,200 is $36 a year. On one policy, that is lunch.

Why so small, after a first year that pays $960 on the same policy at an 80 percent rate? Because the carrier pays most of the money up front and a trickle after. That first-year commission is the subject of the long version, with the month-by-month arithmetic. The renewal is the trickle, and the trickle is the career.

Run the subscription math on it. Sell 100 of these policies in a year and keep 80 in force. That group pays 80 times $36, or $2,880 a year, for policies you placed last year. Next year’s group stacks on top. The year after, another. The stacking is the entire economic case for staying past year two, when the first-year money alone can make year one look better than year two.

No. 03Where people get burned

In shortRenewals only pay on policies that are kept, and only if your contract lets you keep them when you leave.

The comparison makes the first mistake obvious. The cut is on active subscriptions, not on sign-ups. The 80 of 100 above is our assumption; it is the one number in this piece that no source can give you, because it is yours to earn. If a client stops paying in year one, there is no renewal at all. There is a chargeback, the carrier taking back first-year commission it already paid, which a licensing-compliance company’s blog says can be much larger in life insurance when a policy is cancelled within the first two years. Renewals reward the agent who sold the right policy to the right person and stayed in touch.

01

Renewals are the only money in this business you are paid for a year you already worked.

The second mistake is assuming the stack follows you. Some contracts pay renewals only while you stay with the agency. Others vest them after a stated number of years, so they keep coming after you leave. The industry word is vesting, and we found no public schedule for it, so your contract is the only source. Leave before vesting, and the subscriptions you sold keep paying someone else.

Here is where the story stops fitting. A streaming cut would be a flat few dollars. A renewal is a percentage of the premium, and the rate can step down by year, which is why the recruiter’s table says “years two through ten.” And a subscription never asks for money back. A policy can, in year one.

No. 04The one question to ask

In shortAsk whether your renewals vest, after how many years, and at what percentage in year two and year five.

Ask the recruiter or agency: “Do my renewals vest, and after how many years? What is the renewal percentage in year two and in year five?” A straight answer is a yes or a no, a number of years, and two percentages, all of which are printed in the contract. On our example it sounds like “3 percent, vested after a stated period, so $36 a year on a $1,200 policy whether or not you are still here.” An answer about loyalty, about how nobody leaves, or about the stack a top producer has built is not an answer. It is a subscription whose terms you have not read.