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Commission rebate on income protection insurance?

Discussion in 'Superannuation, SMSF & Personal Insurance' started by EMP, 3rd Jul, 2007.

  1. EMP

    EMP Active Member

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    I'd like to get some income protection insurance for myself. I've heard that the commission on this insurance is pretty high. Turns out they weren't kidding - in the PDS that I read it was 22% trailing commission! I'm sorry, but that isn't "high", that is more along the lines of "crazy". :eek: Are there any discount brokers that would rebate part of this commission, similar to the way InvestSmart rebates managed fund commissions? The insurance would be paid for through a super fund, if that makes any difference.

    Failing that, can anyone recommend a good broker, so that if I'm paying this insane commission anyway at least I get some worthwhile advice for it?
     
  2. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    I dunno about reducing the commission, but if it's any consolation, the income protection insurance is tax deductible (either to you if you take it out in your name or to the super fund if it's in an SMSF).

    Mark
     
  3. MattR

    MattR Well-Known Member

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    EMP

    Some of the insurance products out there for life and income protection pay incredibly high commissions to the financial planners (FP) who set them up. I wonder if this is a carry over from the old Life Offices where a lot of the existing older financial planners came from.

    Anyway, enough rambling, I would suggest that as long as the product is suitable for you and it's premium is competitive with similar products then you may have to wear the commission.

    One possible way to reduce the cost of income protection insurance premiums is to take out a two year policy via your super fund and another policy in your own name that only starts at the end of two years. The first policy covers you for the first two years, and the second comes in at the end of that two years up to the agreed termination period (say age 65).
     
  4. EMP

    EMP Active Member

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    Thanks for the replies.

    The policy in the super fund can actually cover me until age 65, so there's no need for another one. The super fund is Colonial First State FirstChoice and they use a CommInsure policy. The fact that the whole premium is coming out of my superannuation money, which I can't access for a looong time anyway is what makes it a good deal - psychologically it's almost like it's not really costing me anything. Even so, if there was a way to reduce the commission, I would have liked to, but fine, I'll just pay it.

    Another whole issue is some of the wording in the policy. It's seems fair enough overall, but it's vague on a few important points and I called up CommInsure to clarify. The person I spoke to was unhelpful, to say the least. The answer to everything was basically "we cannot give financial advice and we cannot talk in hypotheticals - ask your financial adviser". That's all well and good, but even if I had a financial adviser, they wouldn't be the one writing the policy, so they also couldn't be held accountable for their interpretation of it! Who could I ask these sorts of questions that knows what they're talking about and is not trying to sell me anything?
     
  5. crc_error

    crc_error The Rule of 72

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    This is where you need to use a good broker to find a good insurance for you.

    Someone like Life Insurance Australia - Life & Income Protection Insurance Broker can do this for you, they rate the wording and coverage and make recommendations on which ones are the best value/coverage. I believe they use a company which gives the insurance companies 'star' ratings so you can easily make comparisons.

    And I believe they will rebate some of the commission depending on how much business you open with them.
     
  6. DaveA

    DaveA Well-Known Member

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    I thought income protection insurance held in a super fund can’t actually be touched. i.e. the payments are quarantined inside super (similar to a deductible contribution), hence in the case of a payout you wouldn’t actually receive it until preservation age...

    I thought the only exception was in financial hardship, in which all super can be released not just the payouts, have I got the wrong opinion to everyone else??
     
  7. handyandy

    handyandy Well-Known Member

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    I thought the same thing. Not much point having income protection in super. Maybe there is a twist?

    Even with live insurance ther is a real twist as the death benefit is payed to the the super fund/ becomes part of the superfund and is taxable to the benifiacries (whatever that means under the new tax regime).

    I am looking at this from a SMSF point of view so maybe where you are in a commercial superfund again things maybe different.

    Cheers
     
  8. crc_error

    crc_error The Rule of 72

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    exactly, any payout by insurance paid for my your super remains in super. Obviously Life insurance is a example where it doesn't matter, as when you die, your super gets paid out! also TPD would most likely be paid out also, but income protection is probably better paid for outside super, especially since its tax deductible.

    Anyway I don't like the reasoning that paying for it out of super is free money, as the small amounts will greatly affect your payout when you retire, so why throw it away? People should actually be making more contributions to super, rather than reducing them.
     
  9. Rob G.

    Rob G. Well-Known Member

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    If the super fund is insuring you:

    I believe income protection indemnity payments are from the insurance company and the super fund is just the conduit and witholder of income tax.

    The ATO now accepts deductibility of premiums for policies in excess of two years in certain cases.

    Permanent disability insurance income streams are a different matter. Here you satisfy a condition of release and the income stream is concessionally taxed when paid from the super fund.

    Some financial advisors will arrange a refund of the trailing commissions, for a small annual paperwork fee.

    Commercial super funds often get bulk discounts which may still be cheaper even with trailing commission.

    Life insurance premiums are not usually deductible and death benefit payouts are treated as from an untaxed source.

    Weigh this up against deductibility of a policy in your own name - on a higher tax rate.

    You will need to check these facts. I am not going to even guess what is best in your situation !!

    Cheers,

    Rob
     
  10. EMP

    EMP Active Member

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    DaveA and handyandy, there was nothing in the PDS to say that income protection benefits would be paid into the super fund. I called up Colonial First State just now to check and they confirmed that the benefits would be paid to me, not the fund. It would be quite a pointless insurance policy otherwise!

    crc_error, the "free money" perception is definitely a very subjective thing. That's just how I personally feel about it, because I plan to have enough to retire on (outside of super) before I can access super funds. If I was closer to retirement age I would certainly be taking full advantage of super.

    Rob G. - wow, so much info in one post. Thanks!

    Tax deduction: according to the PDS it's something they work out internally and the premium they quote is net of the tax deduction. That seems OK to me. It works out to a similar amount to getting the insurance outside of super. My understanding is that the benefit payments from income protection insurance are taxed as normal income, regardless of whether the policy was obtained through a super fund or not. Does that sound right?

    Commission rebate: would you be to give me the details of such an adviser? Also, what is the annual paperwork that they have to do? I thought that, if I'm not actually seeking advice from them, all they'd have to do is put their stamp on the application form? Do you mean just the paper work to send me the rebate cheque or is there more to it?
     
  11. Rob G.

    Rob G. Well-Known Member

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    Income protection insurance premiums are tax deductible whether in your own name or in the super fund.

    The salary replacement payments are assessable income.

    As an aside, some tradesman friends have found such insurance too difficult to claim against and they now just rely on trauma and life insurance !

    Life insurance and total and permanent disablement (TPD) insurance premiums are deductible to the fund but the disablement condition of release has a lot of hoops to jump through with superannuation law and the trust deed. Also, when a deduction has been claimed for premiums then lump sums received by the fund may be regarded as from an untaxed source. I don't believe the super fund has to claim a deduction for these premiums.

    Life & TPD premiums are not deductible in your name must there is no tax on payouts.

    The details of cover vary enormously along with their premiums. This is where the (competent) financial planner helps by getting you some properly tailored cover and bundling it efficiently to maximise your value for money.

    If you enter into an arrangement with the financial planner to get a refund of trailing commissions, then the planner must maintain a trust account for your benefit over the future years. This is where the small fee comes in.

    Its a pity the individual cannot approach insurance providers and negotiate, but as well as risking being dropped from the mainstream financial planners product offerings the insurer also has to deal with a lot of annoying inquiries. At least large super funds can get volume discounts.

    As regards recommending a financial planner, I can't help as I don't use them personally. I am too scared of running foul of a 40 hour part-time study PS 416 planner tied to a mainstream license holder with a limited number of high margin products. Perhaps other readers can recommend someone, but I think you should find one who specialises in risk products.

    Usual disclaimer - this is only my personal understanding, etc...

    Cheers,

    Rob

    PS. Paying premiums through super really only makes sense if you salary sacrifice or make deductible contributions. Make sure your minimum contributions cover any insurance premiums if paid through super.
     
  12. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    If paid to a dependant, that is.

    Mark
     
  13. Johnno

    Johnno New Member

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  14. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    They rebate up to 50% of the initial entry. Not bad, but not really a huge deal. They give with one hand and take with the other. Depending on how they choose to get paid their comm. from the insurance company, they might be choosing the minimum up front with the maximum trail. So while you think to yourself 'Great! I got a 50% rebate' what is happening is they are getting a big trailing commission - which you are paying for.

    The point? You don't get something for nothing.

    Mark
     
  15. MattR

    MattR Well-Known Member

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    Good thread. learnt a few little twists so thanks all
     
  16. PaulA

    PaulA Member

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    You can also look at YourShare who rebate 100% of all up front commissions, and 50% - 70% of all trailing commissions regardless of who the fund manager is. They work with managed funds, super, wraps and insurance policies.

    I'd like to get some income protection insurance for myself. I've heard that the commission on this insurance is pretty high. Turns out they weren't kidding - in the PDS that I read it was 22% trailing commission! I'm sorry, but that isn't "high", that is more along the lines of "crazy". Are there any discount brokers that would rebate part of this commission

    Good luck
     
    Last edited by a moderator: 27th Jul, 2007
  17. EMP

    EMP Active Member

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    Ah yes, I actually just found YourShare a few days ago and applied through them, but was going to wait and see how the application goes before I posted about them here. I ended up applying for ING OneCare (outside of super) which has a 32% trailing commission every year (and other commission options if you want more upfront, less later). YourShare will rebate 50% of it, which is the best I could hope for, I suppose.
     
  18. PaulA

    PaulA Member

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    Yes, YourShare is a great service. Especially as they work with all fund managers and insurance providers.
    When you make your own investing decisions why should someone else be paid a trailing commission.
     
  19. DaveA

    DaveA Well-Known Member

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    can you have 2 income protection insurance policys?

    My work offers me free income protection insurance for the usually 75% of my wage but i would also like to have a bit of choice and pick my own, so is it possible to have my own set up as well as the free one for the company. I doubt it because it would mean i would be paid 150% of my wage for being off sick

    its just with the company one i have no say in how long the waiting period is or how long the policy applies...
     
  20. Rob G.

    Rob G. Well-Known Member

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    Are you sure either will pay up ?

    Usually there is a get-out clause if you are double-indemnified !!!

    Rob