How is protection commission paid?

Introduction

Here we provide a useful summary to how protection commission is calculated and paid. The full terms and conditions of our commission arrangements are found in  the HSBC Life Terms of Business for Intermediaries (‘TOBA’) along with HSBC Life Protection – Intermediary Commission Guide , which outlines what commission will be paid for HSBC Life Protection, how repayment (known as clawback) works and answers the question, when does HSBC Life pay commission?

The Intermediary Commission Guide, your Application Form and the TOBA form your agreement with HSBC Life (UK) Limited for the submission of Business for Protection Products. The definitions set out in clause 1 of the TOBA also apply to The Intermediary commission Guide.

What commission types do we offer?

We currently offer Indemnity Commission, Non-indemnity Commission or a fixed proportion of each, known as Hybrid Commission. We also offer Renewal Commission. The commission types and rates applicable to you will be as agreed from time to time.

How is commission paid?

The details of our terms of payment and when you will be paid.

Non-indemnity Commission – Find out how Non-indemnity Commission is calculated, with a working example.

Indemnity Commission – Find out how Indemnity Commission is calculated, with a working example, including how to calculate repayment, known as clawback.

Increasing cover policies – Details of uplift to commission when a premium increases over the terms of the policy.

Hybrid Commission – Find out t how you can choose a split of Indemnity and non-indemnity commission.

Renewal Commission – When Renewal Commission is due and how it is calculated.

When is commission paid?

A question we are frequently asked is: when does HSBC Life pay commission? The answer is that commission will be paid:

• Within 30 days of it becoming due
• On a weekly basis
• Subject to the minimum payment threshold set out below
• Directly into the bank account nominated by you on your Application Form.

The amount of commission paid will equal the balance of your commission account after taking into account all credits and debits applied since the previous payment. This will include any commission clawback.

All commission amounts will be rounded to the nearest 1p. For Non-indemnity Commission, this may result in a minor variable to the initial total commission figure.

The minimum payment threshold is £50. If the payment due is less than the minimum payment threshold, we reserve the right not to make payment until the balance due exceeds it.

The following sections of this guide detail what commission will be paid for HSBC Life Protection.

Non-indemnity Commission

Non-indemnity Commission can be selected on a case by case basis, and is only due to be paid once the corresponding premium of that month’s commission has been received by us. The amount due is based on the annual premium and duration of the policy, as shown in the Term Factor Table at the bottom of this guide.

How is Non-indemnity Commission calculated?

Here is an example of how we calculate Non-indemnity Commission:

A customer has taken out a policy with the monthly premium of £25 over a 10-year term. The agreed commission rate is 230%. For this policy, the commission calculation would be:

Commission is paid in equal monthly instalments over the earning period.

In this example, 43 months for a 10-year term:

How do we calculate the earning period?

The earning periods for different policy terms is shown in the Term Factor Table below.

Term Factor Table

What happens if the policy lapses, or a claim is accepted, within the earning period?

When a policy is lapsed or a claim (other than a partial claim) is accepted, monthly commission payments will cease and no further commission will be payable.

Indemnity Commission

Indemnity Commission can also be selected on an individual case basis, and is only due once the first premium has been received by us. The only exception applies to some legacy arrangements, where we will pay once the policy has started.

How is Indemnity Commission calculated?

Indemnity Commission is based on the annual premium and duration of the policy, as shown in the Term Factor Table at the bottom of this guide. Here is an example that demonstrates how we calculate Indemnity Commission:

A customer has taken out a policy with a monthly premium of £25 over a 10-year term. The agreed commission rate is 196%. For this policy, the commission calculation would be:

The full amount of Indemnity Commission is payable in one upfront payment and is conditional upon premiums being paid during the earning period. In this example, the earning period is 43 months and the payment is £539.02.

What happens if the policy lapses within the earning period?

Where Indemnity Commission is paid and a policy is lapsed, cancelled or otherwise terminated within the earning period, a proportion of the commission paid will become repayable to us. This is known as clawback. Any commission repayable will initially be offset against any new commission generated.

How does clawback work?

Here is an example of how commission repayment is calculated:

A customer has taken out a policy with a monthly premium of £25 over a 10-year term. Indemnity Commission is paid as follows:

The customer cancels this policy after 9 monthly premium payments have been made. The clawback amount is therefore calculated as follows:

What happens if the policy ends during the earning period due to a claim being accepted?

We do not require repayment of the Indemnity Commission if a policy ends due to a claim being accepted.

Increasing cover policies

Where commission on increasing cover policies is paid on an Indemnity and Non-indemnity Commission basis, a 10% uplift in commission applies. This is to allow for the increase in premium over the term of the policy.

For example, if the agreed commission rate is 196%, the commission rate will increase to 206% (196% + 10%).

If the customer chooses not to exercise the option to increase their cover at the first policy anniversary date, then the 10% uplift in any commission already paid will become repayable. For Indemnity Commission, the 10% uplift will automatically cease.

Hybrid Commission

Hybrid Commission is a way of choosing a split of Indemnity and Non-Indemnity Commission and the split can be any %.. If required, then it must be set up at agency level to apply to all cases.

Renewal Commission

Where we have agreed to pay Renewal Commission, this is only due once the corresponding premium in respect of that month’s commission has been received.

How is Renewal Commission calculated?

Renewal Commission is based on the monthly premium. It is calculated as a percentage of each premium received after the earning period.

Here is an example of how we calculate Renewal Premium:

A customer has taken out a policy with a monthly premium of £25 over a 10-year term. The agreed Renewal Commission rate is 2.5%. Renewal Commission will become payable at the end of the applicable earning period, which is 43 months in this example.

For this policy, the commission calculation would be:

Commission is then paid after each premium is received for the duration of the policy.