Compare the Pair: How You Pay For Insurance Matters!
Over the last couple of weeks, I’ve compared the ways in which you can choose to pay for financial advice and superannuation. This week I want to look at how you can choose to pay for personal insurances.
Before we get started, I want to highlight why personal insurances are so important. What is more valuable to you and your family - your ability to earn an income or your car?
The answer is obvious. While almost everyone insures their car, most Australians have either not insured themselves or are chronically underinsured.
There is a widely held perception that things like life insurance and income protection are hideously expensive and that insurers don’t pay claims. Firstly, insurances can be much cheaper than you might think and ASIC data shows that in 2018 insurance companies paid out 96% of life insurance claims and 95% of income protection claims for policies bought through a financial adviser.
So, I think we can agree that you are far more valuable than your car and we can see that insurance is highly effective when done correctly.
From there, the question becomes how can you get advice in this area? Well, that boils down to paying a fee to get advice or not paying a fee and having an adviser paid a commission by an insurance company instead.
For many Australians, the idea of a commissions sits well with them as the perception is that the advice associated with the insurance comes for ‘free’. After all, it’s the insurance company that is paying the adviser, not the client.
However, like everything in life, nothing is free. The price of not paying a fee and having commissions paid on your insurances is a 25%-30% additional cost in the premiums which you pay for every year of the policy. Not just the first year, every year! As some of these policies may be held for decades and the premiums go up as you get older, that additional cost can add up to tens of thousands of dollars in extra premiums being paid over the life of the policies. Speaking of cars… those savings could be the equivalent of not having to pay for one or two cars in your life!
We’re lucky! We live in a country that offers us lots of options in life. When it comes to insurances, this is another opportunity to arm yourself with knowledge. This is an area where there is a knowledge gap…
Research by MetLife found more than half (55%) of consumers are not aware of the amount of commission their financial adviser receives. They also found 78% of consumers with life insurance through an adviser say they would prefer to pay an upfront fee for advice with lower insurance premiums over the lifetime of the policy.
Insurance is a key part of a smart financial plan… it’s financial protection for you and your family. When it comes to getting help with insurances, there is a growing number of financial advisers who don’t believe in accepting commissions… I’m one of them. It’s one of the things that allows me to call myself an independent financial adviser.
Cheers,
Daniel
If you’d like to find out more about how INDEPENDENT financial advice could help you manage cash flow, pay off the mortgage faster, get the most out of super and invest wisely, then get in touch on 0411 484 464 or head to wealthtrain.com.au.
This advice may not be suitable to you because it contains general advice which does not take into consideration any of your personal circumstances. All strategies and information provided are general advice only.
Daniel McGregor and Wealth Train are authorised representatives of Independent Financial Advice & Education AFSL 520963