Ahead of ASIC's review of the Life Insurance Framework, a new report by Key Person Risk Management's Brett Wright outlines some startling life insurance costs for advised clients under the fee-for-service model.
Regarding the initial process for getting covered through an adviser, Wright suggests advisers will need to charge the average person between $3,000 and $5,000 for the "review, advice and implementation of their personal, family and/or business protection needs." He adds that these costs will still be incurred by the client even if the insurer denies their application.
Under a commission or brokerage model, though, Wright says both cost and "complexity barriers" are removed. On top of that, he adds, "the consumer receives policies that are generally better-priced, provide more benefits, are easier to claim and are fit-for-purpose."
When it comes to reviewing and renewing policies, Wright says advisers will need to charge clients $600-$1,500 annually using fee-for-service, while commission/brokerage models "[cover] te cost of any market reviews and policy adjustments."
The highest costs under a fee-for-service model, though, are incurred when an adviser assists a client with the claims process. Claims, Wright explains, generally between 10-40 hours, and using fee-for-service, "advisers will need to charge consumers between $3,000-$12,000 per claim to assist them and their family." Once again, these costs are incurred even if the client's claim is denied or reduced.
Wright continues: "Commission/brokerage covers the cost of managing claims and removes the need for consumers to pay large fees after being dealt the physical, mental and financial blows associated with losing the ability to work, or a loved one passing away.
"Ultimately, advisers are able to advocate for their clients and ensure integrity and trust is maintained at the most important time of a policy’s lifecycle and at a time when their clients are most vulnerable, no matter the size or complexity of a claim."
Contrary to popular sentiment, Wright argues, consumers generally prefer the process of applying, renewing and claiming under a commission/brokerage model. He says this is because "life insurance is complex, confusing and people don't wake up in the morning thinking about why they need to buy it."
"Life insurance advisers," he explains, "cut through consumer apathy and are able to do this by making the process seamless for the consumer, often collaborating with other professionals such as accountants, and willingly providing advice and services without consumers needing to worry about being charged thousands of dollars in upfront and ongoing fees on top of their insurance premiums."
The benefits of working with a financial adviser to find the right coverage (and the peace-of-mind that entails) are discussed extensively in the latest season of Secrets of the Money Masters. These episodes feature Nina, a professional photographer with a "lumpy" income stream whom AIA Australia's Pina Sciarrone suggests would strongly benefit from income protection.
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