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Old 03-29-2018, 11:56 AM
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HenryGale HenryGale is offline
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Default Is renewal commisson deferrable?

The argument for it would be it's the cost is for acquisition of new-ish business, since without it the business would have been gone;

but the argument against it would be that the business is already acquired, the renewal is just for continuation of the already acquired business...

what's your thought?

Thanks
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Old 03-29-2018, 02:00 PM
JimActuary JimActuary is offline
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If the renewal commission is a constant, level percent of premium, for traditional life there would be no bottom line impact. Since deferred expenses are amortized as a constant percent of premium, it would be capitalized and amortized in the same period. For this reason, only the "excess" renewal commission rate, over the ultimate commission rate, is usually recorded as deferred. For flexible premium plans, I have seen that same approach used even though the amortization basis is different. Only the extent to which the current renewal commission rate is in excess of an ultimate commission rate is it considered deferrable. If the commission rate after, say, 10 years is zero, then all renewal commissions are deferrable.
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Old 03-29-2018, 11:54 PM
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Agree with Jim - only defer the excess over ultimate renewal commission rate.

(e.g. if ren comm = 5% in yr 2-10 and 2% in yr 11+, then defer 3% in yr 2-10 only)
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