Cheaper Life Insurance Pay a Fee Not Commission

Published / Last Updated on 13/11/2014

Video explores how paying a fee for life insurance, critical illness and income protection policies may save you a lot of money when compared to letting your financial adviser take commission.


“Hello there, the subject for this video is: Should you pay a fee for life insurance policies or should you let your financial adviser take commission?

Right, what is not commonly known at the moment is for things like protection policies, life insurance policies, income protection policies, critical illness policies, banks and financial advisers can still take full commission even when they give advice.

Now, we’re all, I hope, quite familiar now with the fact that if investment advice is given or pensions advice or ISA advice, where its “advice” for most regulated products your financial adviser is required to charge you a fee and it is only where “no advice” is given that full commission can still be paid.  What a con that is!

But, for protection or protection type arrangements: life insurance, critical illness insurance, income protection policies: full commissions can still be paid. 

Now the way commission works on these types of policies is it’s called “indemnified rollup”, an indemnified policy commission and how that basically works is: let's imagine you're paying £100 a month for some life insurance and critical illness.  Now the commission on that is probably deducted every month to go: “right of this £100 per month, £10 of it is commission” and what they then do is they roll that up and they make an assumption that for example: let's say you're going to have to policy for 10 years, well the first four years premiums they will say: “right, okay, £100 a month, £10 a month is commission that's £120 a year commission.  The commission is £400- £500 but is actually even more that. 

The commission on £100 a month policy is probably nearer about £1,000.  So all of that is rolled up, on the assumption that you're going to pay your premiums for quite a few years yet. So a financial adviser or a bank sell you a protection, an insurance policy or an income protection policy or a critical illness policy and they get a lump sum of commission up front, nice lump sum thank you very much.

Now, what I would like to introduce to you is the concept of paying a fee for your insurance protection policies and I'll give you an example:

I was recently dealing with a lady where I quoted her, we did some research and the premiums for the particular life insurance with critical illness policy were going to cost about £200 per month.  Hmm, £200 per month and the commission on that would have been over £3,000.  Wow!  I fill out one application form, thank you very much. We do all of the underwriting, we submit the application and we get paid £3,000 upfront for doing one policy.

Now, as many of you will be aware, we actually charge fees for all the work that we do. We do not take commission.  Now our fee for arranging that sort of policy with no commission taken is, well as at today it's November 2014, our fee £750.  A lot of you will baulk at. “I’m not paying £750 for a life insurance and critical illness insurance policy.”  But let me give you some numbers here: on a full commission basis £3,000 commission, the premiums were £200 a month,  On a nil commission basis where we charged our £750 fee,  the premiums went down from £200 per month to a roundabout £140 per month.  That's £60 per month saved just on the fact that we've done it on the fee basis and not on a commission basis.  So in reality, by my client working on a fee basis with us, she saved £60 a month for the rest of the term of the policy but paid a fee of £750 upfront.  Effectively, the breakeven point is roundabout 12 months. So after a year of paying our fee upfront and paying that reduced premium, a reduction of £60 a month, she's broken even.

And then, [for] the rest of the term of the policy, in this case it was 10 years, she's saving £60 per month, £720 per year for the next 9 years. [And] what's that: 9 years at £720 [per month – you be per year] that's over £6,480 saved in premiums.  All for the fact that she paid a fee to arrange her life insurance and critical illness insurance and have no commissions charged to the policy etc.

A pure fee, nil commission protection contract can be so much better value for you than just going: “well I don't have to pay, they can have it, the adviser, the bank can have it on a commission basis.  So my guidance here for you is :

  1. Talk to us about fee only life insurance and critical illness insurance and income protection policies and
  2. If you've already arranged your life insurance for your protection policies through another financial adviser or through a bank, where they all took the commission and didn't charge you a fee, talk to us and see about getting a revised quotation to see whether you can get it a lot cheaper and potentially save yourself a lot of money over the coming years.

So that’s the video dealt with life insurance and critical illness and income protection policies on a fee only basis versus the same sorts of policies where commissions are paid to a bank or a financial adviser.  Thanks very much for watching.”

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