RFJuly2007

Just how much are you paying for your life, trauma, health & disability insurance?

There are a couple of things about insurance we’d like to talk about in this issue of Recent Focus. The first one is the amount of commission you pay.

There’s been a bit of discussion recently about insurance commissions and how much your broker gets paid. There’s even current legislation going down about just this issue. We’re not sure this will change anything much at all. The camps are divided between what should be disclosed and what shouldn’t be disclosed. Or more to the point, what your broker can legally get away with NOT disclosing. (And actually, there’s quite a lot he doesn’t have to tell you)

OK, so we all know insurance brokers get a commission on any in

surance they place. They have to get paid somehow, right? But just how much of the premiums you pay end up in your brokers pocket and what does this mean to the cost of your insurance? And is there another way of doing it so that both the broker and the client “win” out of the deal?

We’re of the opinion that people should be given all the facts, otherwise how can they make an informed choice? Answer is … they can’t! Is that how it should be? We don’t think so!

Try this one on for size – Jake and his wife are in their 30’s with two small children. They both need life and trauma insurance, plus some income replacement for Jake in case he can’t work for a while and his family still want to eat.

Years	Accumulative Premiums (Standard Initial Commission)	Accumulative Premiums (Nil Initial Commission)	What you get to keep
	$	$	$
1	4,027	3,064	963
2	8,240	6,267	1,973
3	12,647	9,607	3,040
5	22,110	16,807	5,303
10	52,914	40,154	12,760

you can see, in the first ten years of the insurance contract, Jake will save $12,760. He’s in his 30’s , so chances are this insurance will be in place for, say another 20 years and may well be in place until he dies. You do the math – if Jake’s saved almost $13,000 in the first 10 years – what will his savings be at the end? That makes you sit up in your chair I’ll bet!

If you add other stuff into this such as shareholder buy/sell insurance, key person benefits etc, the savings go through the roof!

What you probably don’t know, is that your broker can chose just how much commission he gets from your premiums. Anything from 0% to (in some cases) 200% of your first year’s premium. What you also may not know is that commission just doesn’t get charged on your initial premiums, it’s charged on each and every one of your premiums until you stop paying them. Scary, isn’t it?

The good news is there are alternatives out there. You’ve just got to know where to find them.

Is your insurance documented in the correct way (so that it does what you want it to do)?

Once you’ve got insurance in place, it’s vital to make sure it’s correctly structured. By that we mean making sure it’s owned by the correct person or the correct entity. If this is left out, your insurance may not do the job you bought it to do – and what a waste of time (and money!) that would be. Imagine if your family were the last ones to get any money from your $750,000 life insurance policy because the government, your creditors and your professional advisors had first dibs? That can all be avoided by making sure it’s structured correctly in the first place.

Insurance can’t be taken in isolation. It’s part of a much bigger picture and needs to be included in it, so that it works with it and not against it. (that’s part of what we do – and why we’re called Full Focus).

If you’ve got shareholder buy/sell insurance in place you need to make sure all the legal agreements are in place to support it. You also need to make sure the insurance covers all the costs involved – not just the purchase of the shares. – sometimes that’s the booby prize!

Read our case history and see what happened to Max & Jim’s shareholder buy/sell arrangements!

Jeff and Helen were very careful about their estate planning. They had five young children (phew!) from their marriage and Jeff had an additional two children from his previous marriage. Jeff’s two elder children were in their 30’s.

On reviewing their estate planning we came across one very simple thing ….one simple thing that could cause disastrous consequences:

Jeff had a life insurance policy for $750,000. This had been put in place to make sure his young family would be OK if he died unexpectedly. The insurance policy was owned by him. This may seem like a logical way of doing it and it’s certainly true that a lot of people own their own life insurance policy. But here’s what this means in Jeff’s case –

When Jeff dies, the $750,000 from the life insurance policy will fall into his estate.

Once the solicitors etc. have been paid, whatever’s left of his estate will be distributed as instructed in his will.

His will states his children should all benefit equally. This means his 2 elder (and now self-sufficient) children will receive the same benefit as his younger children (who have years of needing to be looked after ahead of them).

This is not what Jeff wanted. Jeff just didn’t think it through and nobody had explained it to him.

One simple thing could handle all these problems - the correct ownership of the life insurance policy!

We have more information on this topic, and on how to get the best deal with your life, trauma and disability insurance.

Do you know someone we might be able to assist? Please give them our contact details, refer them to our website, or provide us with details so we can contact them. Click here to see how we’ll handle your referrals

Read the last issue of Recent Focus (How to avoid the family business battleground)

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