Why You Need Life Insurance Advice

It has been the case in recent times that some politicians and regulators have been questioning the commissions paid to financial advisers. The view is that the commissions are excessive, and that some financial advisers are symply not looking after the client best interests, regardless of it being a legal requirement under the corporations law

So why are these financial planners being being paid such high commissions?

The answer is that good life insurance advice is a tedious and protracted exercise that required, significant research and experience.

Legally a financial planner must take into account what is best for the client, and they also need to do it in within the budget of the client.   This is not an easy task, give the myriad of life insurance options and the fact that life insurance is a grudge purchase for many.

The alternative, is for people is to just go and get a policy, themselves, save the fees. Sound like a good idea.

If so you should consider the fate of Tony Greig. When the world famous Nine Network cricket commentator and forme­r England cricket captain was dying, he was told an expensive life insurance policy he had taken out was not valid.

From what is known publicly, it would seem that Greig, who was not unfamiliar to the life insurance industry, may have been a self directed life insurance policy holder, which is unusual with policy’s like the Comminsure Total Care Policy, because it is a complex product .

However if he did receive financial advice then the adviser would need to demonstrate that he understood the Tony Grieg’s needs and their recommendation satisfied these objectives. if the adviser cannot demonstrate the suitability of the advice then their may be recourse against the financial adviser.

Sadly Tony Greig was diagnosed with terminal cancer, and as The Australian’s Shari Markson has told us Tony Greig receive a trauma payment from his life insurance policy. It’s believed that that payment was in the order of $600,000

The problem was that Tony Greig passed away 10 weeks after his diagnosis. As Greig prepared for the inevitable he was shocked to discover that he would need to stay alive for 12 months after his cancer diagnosis before his family would be eligible to receive a further life insurance payout of about $600,000.

Tony Greig’s deathbed discovery was that, if a trauma claim was made and it had been, CommInsure would only pay life insurance from the Total Care Plan if he survived for another 12 months.

The Total Care Plan clause 3.12 Trauma Cover Buy Back Benefit says:

The Trauma Cover Buy Back Benefit applies if a claim for the Trauma Cover benefit is paid which results in a reduction of the benefit to less than $10,000.

If the Trauma Cover Buy Back Benefit applies, then twelve months following the date of payment of the claim which resulted in the reduction of the Trauma Cover benefit to less
than $10,000, the Trauma Cover benefit will be reinstated to the amount which would have applied under the Policy had no claim for the Trauma Cover benefit ever been paid.

So what is a Life Insurance Buy Back Option? 

The Life Insurance Buy Back Option is a policy option applied to bundled Life Insurance policies like Comminsure’s Total Care Plan, which allows the life insured to ‘reinstate’ their full life insurance value after a TPD Insurance or Trauma Insurance claim.

The re-instated Life Insurance normally occurs 12 months after the TPD or Trauma Insurance claim and in most circumstances; the life insured needs to confirm to the insurer within 30 days of the 12 month anniversary that they wish to have the life insurance re-instated.

There is no medical underwriting required to increase the life cover and premiums are not re-rated for change in health circumstances.

How does the Life Insurance Buy Back Option work?

Taking the example of what has been said publicly about Tony Greig’s life insurance he had taken $600,000 of Life Insurance and Trauma Insurance of $600,000. The policy responded to his cancer diagnosis and paid a Trauma claim, the Life Insurance is then reduced by the same amount, leaving $0, Life Insurance Coverage.

Had Tony Greig survived another 12 months and provided he notified the insurer this Life Policy would have returned to the original $600,000 cover, but he would not have had ongoing Trauma Insurance.

In simple terms if a life insurance claim is made within 12 months of a Trauma Insurance claim then the reduced amount of life cover is payable to the beneficiary.

Care needs to be taken where TPD Insurance is also included as the TPD Insurance can be reduced indefinitely by the trauma claim. Policies can be structured however to ensure that future lump sum disablement needs are met.

The Life Insurance Buy Back should not be confused with a ‘Trauma Re-Instatement Option’ which re-instates Trauma Insurance after a claim to allow the life insured to claim again on Trauma Insurance for events that are not related to the original claim.

Life Insurance clauses are not straight forward because of the myriad of options and conditions

A spokeswoman from Comm­Insure told The Australian newspaper that “For every individual customer case, we always aim to do the right thing. Sometimes new information becomes available and we are always happy then to review the decision.

“We believe in the value of financial advice and some life-insuranc­e products, like the Total Care Plan, are only available via a financial adviser, given the complexity of the product.

“This is one reason we always suggest that our customers seek the advice of a financial adviser to help choose insurance cover that best suits an individual’s needs and circumstances.”

With the proposed Life Insurance Framework changes the government is planning to reduce commissions to get rid of bad advisers. It is our opinion that the law very clearly states that advisers must act in the clients best interest so the law is sufficient and no other action is necessary.

In fact the unintended consequences of the proposed Life Insurance Framework proposals will see less people getting financial advice as advisers can no longer economically provide such.

This will see a lot more cases similar to the Greig family as they will not understand what contract they have enter into with the insurance company.

In all other cases commercial contracts are encouraged to get legal advice but the government must see this as an unnecessary step in the world of life insurance for mum and dads.