Can I get some of the commissions back?
The life insurance industry is tainted with stories of financial advisers aggressively recommending policies that clients do not need to receive commissions off their policies. Here, we explore the relationship between the premiums you pay and the commissions the adviser receives as well as discuss how you can get some of those commissions back in your pocket instead of your financial advisers.
How are commissions paid to advisers?
To get a better understanding of how commissions are paid, we look at Cathy, a 45 year old female working in a clerical role. Her financial adviser recommended a $1 million term life and TPD (Total & Permanent Disability) insurance policy, as follows:
| Insurance cover (life/TPD) | $1m |
| Premium (per annum) | $1,500 |
| Upfront commission to adviser (for securing new business for the insurer) | 60% (or $900) |
| Ongoing commission to adviser (for retaining business for the insurer) | 20% of ongoing premiums |
Cathy kept the policy for 10 years and her premiums increase every year she gets older, until age 55 where her premium increase to $5,000 per annum and her adviser earns $1,000 from that year alone. Over the course of the 10 years, Cathy’s adviser would have been paid approx. $6,000 in upfront and ongoing commissions (extrapolating the increase in premiums), or $600 pa on average.
You pay higher premiums as you get older or if you have a higher insurance cover. Upfront commissions are paid when you first obtain the policy. Ongoing commissions are paid as long as you continue to hold the policy.
Is there an alternative?
There is no simple answer to this. There is great value to seeing a professional for advice, and commissions are one way of remunerating advisers for their time without having to incur an upfront out of pocket expense for the advice. Conversely, fee for service professionals charge an upfront one-time fee to their client and opt to rebate their commissions back to their clients. A fee for service adviser typically charges less than a commissions-based adviser to ensure there is value and a financial incentive in paying an upfront fee.
What is the right option for me?
If you prefer a model where you receive commissions back, Easy Refunds can help! We collect the commissions on your behalf and rebate them twice a year. You won’t even need to change policies or products, you keep the same policy you have always had, but transfer the rights over to us so we can start collecting the commissions. Take the next step and see how it works here: Get your refunds
