Life insurance churning and commission rebating combined

Lsaffers on 13/02/2015 - 15:36

I have not seen these two items discussed together.

Churning is when the broker sells you a new policy every two or so years to get a new commission (Common commission is 100% for the first year and 10% per year after).

Commission rebating is when you get insurance via a rebating company that rebates some of the commission to you.
Like this one http://www.mcmastersinsurance.com.au/get-started/

I recently received a quote from an adviser for Income Protection, Death, TPD and Trauma Cover through AIA. Premiums for my wife and I total $6600 per year.

The adviser will receive $6200 upfront commission and $730 per year renewal commission, he declares this on a SOA.

Now if I take the proposed cover via McMasters Insurance they change a fee of $300 and refund all the commissions. So the first years cover will basically cost me $300 + $400 and the next year I will receive $520 back from the $730 as Mc Masters will charge $210 for their service.

After two years go through the process again in the end your insurance premiums will be +-60% of what it will be if you just kept it rolling…

Any thoughts on this?

Financial

Comments

  • Aust on 13/02/2015 - 20:44
    +1

    Sounds like a great deal but a couple of dilemmas which only you can answer I'm guessing your a business owner and by having life / trauma covers etc your no dill and commend you for wanting to protect your families future so you would have already likely considered this but hey, we all want to save money where we can.
    You have received financial advice from a financial adviser, and your going to consider using that advice to go with another financial adviser who will accept no responsibility as they have not provided that tailored advice.
    And there charging you $300 to do this.
    I would be wanting it in writing that they are going to assist you or your estate (if your 6 feet under) with any claim which I doubt they will.
    Dont get me wrong, I think the benefits in reimbursement are great for you.
    You just need to weigh up the pros and cons.

    In 12 months time, are you paying them $900 to review your covers?
    Remember the adviser your leaving should be doing it for free "every renewal" so there is some of your cash back you need to consider.
    PS, My understanding is its only churning if its moved without any benefit to you regarding price versus coverage and you need to approve them to do it anyway.

    PPS - I am not a financial adviser but do work in the insurance industry.

  • vikvance on 14/02/2015 - 10:49

    Thanks for the link to the McMasters website.

    I wasn't aware that such heavy rebates were available. They would make insurance a lot more affordable.

    Are there any advisers in NSW offering similar levels of commission rebates ?

  • ShannonIngram on 15/02/2015 - 08:40
    +1

    I personally don't trust this model with a brand new startup business too much (think refund home loans that ended up going bust). I also have an ethical issue with them profiting off the hard work of your first financial planner (how many pages was that SOA - generally a lot of research/time goes into a plan)

    The other thing to keep in mind if you are switching insurance every couple of years, is the impact of stepped vs level premiums. As you get older (and are more likely to need the insurance) the price goes up dramatically on a stepped premium, and as far as I know (not a financial planner!) a level premium won't be available if you are planning on switching every year or two.

  • saffers on 16/02/2015 - 09:29

    Thanks for the comments.

    I think that anyone with half a brain can work out what cover they require, you need and adviser to tell you which company covers your circumstances the best. With the commission model advisers are pushed away from focusing on the client`s needs, from my experience they will always advise you to get the most cover affordable as that equates to the most commission. But you only need cover for your risks.

    I also don`t believe the adviser does allot of hard work with the SOA - maybe for some people with special circumstances. The one SOA I received still had another clients name in the one section. Really a copy and paste job.

    I agree that the adviser could be very useful at claim time, if they are worth the money they got at sign up. I would prefer paying a commission at claim time. :)

  • x31337 on 03/04/2015 - 20:55

    Advisors typically receive 100-130% of your first year premium as initial commission. However, there has recently been a recommendation made in the Trowbridge report to move this down to max 20%, ehich is a drastic change. If ASIC decides to take this up, then insurance premiums could fall in the near future.

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