Financial Planning and the Life Insurance Agency

In this article, the effects of fee-for-service personal financial planning on the decision making of a profit-maximizing life insurance general agent are examined. Three refutable propositions are developed which implicate the movements of the general agent who must adjust to a new optimal profit-maximizing allocation of financial planning, personal insurance sales, and agent insurance sales when there is a change in one of the fee or commission rate parameters. It is demonstrated that insurance sales uncertainty does not alter a risk neutral general agent’s allocation of financial planning, personal insurance sales, or agent’s insurance sales. However, insurance sales uncertainty leads the risk averse general agent to lower allocations of personal sales and agent’s sales, while maintaining the same equilibrium quantity of financial planning services. The results are illustrated with an example.