Commission rebate on income protection insurance?

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, 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?

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

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).

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?

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.

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??

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

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.

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

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?