It probably does not come as a surprise to you to learn that insurance brokers selling life, TPD, income protection and trauma policies get paid a commission from the company issuing the policy.
What can come as a shock is the size of the commission which nowadays is generally 115% of the first years premium. For example if your insurance premiums are $1,000pm, then the adviser gets $13,800.
This is paid upfront on commencement of the policy and explains why most brokers have big fat grins on their faces as they skip down your drive towards their flash car. There is also a small ongoing trail each of year of around 10% of the premium.
To be fair these payments will have been disclosed in your statement of advice, should you have managed to wade through to the relevant page without falling asleep.
There are a couple of issues with this remuneration method that I have problems with.
- First is that it may encourage advisers to sell too much insurance, as the higher the premium the more they earn.
- Second it encourages advisers to switch (or churn) your cover from one insurer to another every couple of years, as each time they do this it generates a new upfront commission, and
- finally it is you the consumer that pays for this in the end by way of higher premiums.
There is however another option we have been able to offer for a couple of years, and find to be far more open and equitable. Clients love it, other advisors hate me!
- First, we tell the insurance company to reduce the commissions to zero. All the major insurers will do this
- This reduces your premiums by about 30% each year. I stress this 30% reduction is in place for the entire life of the policy, so you save heaps.
- Finally, we charge you for the time it takes us to put together your insurance package. Seems fair to me!
Simple really! Advice the way it should be.
Lindsay 0413 952 180