The commission you receive from Insurers is not your money yet. It is just an advance. And you MUST treat it like that.
It’s a bit like tax.
If you don’t put the money that you owe in the future into a separate ring-fenced account, then you’re walking a dangerous tightrope.
You must predict what clawback you are likely to receive over your entire clawback period.
Depending on your business, this will typically be anywhere between 15% and 30% of your commission income from the insurers.
I have a client for whom we have deliberately developed a “low clawback” process in which the predicted clawback over 4 years is less than 10%, but that is a rarity.
Don’t use the extra money
Take this amount of money immediately and store it in a ring-fenced account, so that you do not spend it.
- Don’t be tempted to spend it on marketing.
- Don’t consider it in the calculation of your profits.
- Don’t use it as an investment in other opportunities.
The money is not yours, and it will be taken from you at some point (when the policies get cancelled).
There are countless protection distributors, both large and small, who have made this very mistake. It rarely ends well for them.
The only ones who have survived after this mistake are those who have applied questionable financial manoeuvring techniques to survive. This may not be an option for you; either in reality or as per your morals.
Simply put, make sure you provision for clawback effectively and keep this money separate!