120% upfront commissions a myth
Life/risk advisers are not getting anywhere near the 120 per cent up-front commissions frequently mentioned in the media and consumers may actually be worse off under industry changes, according to specialist insurance comparison firm, Life Insurance Direct.
According to the firm, rather than 120 per cent upfront commissions, by the time GST and other factors are taken into account, the average commission received upon policy implementation is closer to 89.83 per cent.
What is more, Life Insurance Direct chief executive, Russell Cain is suggesting that the major insurers are not doing enough to end the public's misconceptions around the existence of 120 per cent upfront commissions.
He said that for the past few years his firm had been tracking applications, policy transactions and commission payments received and the resulting data gleaned from around 3,000 policies across 10 life insurers provided an interesting case study.
Cain said it revealed that the average annualised premium was around $1494, that the 120 per cent commission paid by life insurers was inclusive of GST and that the life insurers generally don't pay commissions on frequency loadings (6-9 per cent), policy fees ($5.61 — $8.82 / month) or stamp duty (0-10 per cent) but these are included in the mythical "120 per cent" cited by these companies.
He said this should prompt questions around how much consumers should be paying for life insurance.
"When it comes to life insurance, it's not necessarily a case of you get what you pay for," he said.
Cain said his firm had conducted research into over 20 life insurance offers that showed that cheaper policies could often offer better value than more expensive policies.
"Generally speaking, life insurance policies sold direct to the public by big brands are usually more expensive and less comprehensive than those offered via financial advisers," he said.
Recommended for you
Policy and advocacy specialist Benjamin Marshan has left the Council of Australian Life Insurers after less than a year, having joined in March from the Financial Planning Association of Australia.
The declining volume of risk advisers meant KPMG has found a rising lapse rate for insurance policies arranged by independent financial advisers, particularly in the TPD and death cover space.
The Life Insurance Code of Practice has transferred from the Financial Services Council to the Council of Australian Life Insurers.
The firm has announced it will no longer be writing new life insurance policies in the retail advised and corporate group insurance channels, citing a declining market and risk adviser numbers.
