If there’s one time you shouldn’t be taking your life into your own hands, it’s when you’re considering a life insurance policy. But that’s exactly what you could be doing if you buy a policy from some financial advisers.
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While the general financial advice industry today is more strictly regulated than it was, it’s still open season for many shonky practices — excessive bonuses and commissions, unnecessary upselling and, in some instances, no compulsion to meaningfully disclose any of this.
That’s a shame because life insurance can be a good idea if you have dependents and a mortgage. When taking out a policy you choose a “sum assured” that’s enough to cover your debts and provide an income for your family if something happens to you.
All good so far, but how do you find out which policy works best for you? You could consult a financial adviser. But they may not tell you, unless you ask, that they stand to earn up to 200 percent of your first year’s premiums, or that the company providing the policy has just sent them on a week-long holiday to Vegas. And you may not realise the insurance salesman can make a lot more money by switching you to another policy in just a few years, or that they are paid a bonus if they sell a certain number of a company’s policies.
The Financial Markets Authority (FMA) last year compelled 12 insurers to hand over four years of life insurance information. It found the quality of a policy was only a minor consideration when some advisers upsold clients. In other words, they were acting in their own interests and not the consumer’s.
While some advisers are employed by insurers and banks to sell the company’s policies, authorised financial advisers and registered financial advisers can choose to sell policies from one or multiple companies.
As insurers obtain significant business from advisers, the sweeteners get ever sweeter. The FMA found overseas trips “appear to be” an effective incentive for policy replacement. From April 2011 to March 2015, insurers paid for advisers to visit Shanghai, Prague, Las Vegas, Hollywood, Rome, New York and Rio de Janeiro. One adviser went on 10 trips.
The biggest loser in this is the muggins consumer who suffers poor advice, the risks around non-disclosure, and higher premiums.
The Financial Advisers Act is being reviewed. We are strongly pushing for the overseas trips and other soft-dollar incentives and commissions to be banned. We also want more light shed on this industry, including requirements for complaints to be disclosed.
Once the slush is cleared away, consumers might actually be able to weigh up the pros and cons of different policies.
About the author:
Sue Chetwin has been our Chief Executive since April 2007 after more than 25 years in print journalism. She was formerly the Editor of Sunday News, Sunday Star Times and the Herald on Sunday.
Sue oversees all of Consumer’s operations and is also the public face of the organisation. Sue is a director of the Banking Ombudsman Scheme and a member of the Electricity Authority Retail Advisory group.