Tag Archives: no commission

The numbers dont lie…

Following on from my post last week about direct insurers being so much more expensive than normal insurance companies (even at full commission) I thought I would get a few quotes from them. I asked for R1million life cover for a 44 year old male, non-smoker, top income and health bracket and this is what we got back. We also tried to compare apples with apples and so the premium escalation structure is a simialr as we could get them.

Company Premium
OutSurance Life R 368
1Lifedirect R 374
Instant Life R 178
Altrisk (commission) R 205
Altrisk (no comm) R 150
Discovery (comm) R 283
Liberty (comm) R 375
Sanlam (comm) R 380
Met Odyssey (comm) R 204
Momentum (commission) R 221
Momentum (no comm) R 187

Not only are the direct insurers more expensive than the traditional companies, but they are more expensive even at full commission and they claim to cut out all of that. Would love to hear an explanation from them on this. I think it might be bordering on misleading advertising.

There is only 1 direct insurer that really is cheaper but then you would not yet have heard of them because they have not yet spent millions on advertising – I guess that is why they are cheaper at this stage.

So for my money, if you want to go direct, then go to Instant Life, else use a broker – even at full commission you are better off (by far) than Outsurance or 1lifedirect.

DIY by all means, but…

I have long been an advocate of people doing their own financial planning. Far too many vested interests in the industry would have us believe that Financial Planning is too complex for individuals to do their own and that as a result they need the services of an advisor/financial planner. Bollocks I say. There is so much common sense involved that just about anyone with a brain and some time and effort could do their own financial planning (there is no need for it to be complicated or out of reach of Joe Average).

However, to my mind, doing your own financial planning could be likened to fixing the plumbing at home. Any one could do their own: get the instruction book, get the correct tools and parts and then spend the time fixing it. While this might provide an element of satisfaction to you, it could end up taking 2-3 times as long as it might the plumber (and lead to plenty of frustration and fowl language) and you might need to do it over because you did not do it right the first time. Or, you call the plumber. It is about the maths…you need to know how much your time is worth to you versus what it would cost the plumber. Either you spend the time fixing it or you call the plumber who will probably get it done right the first time in a fraction of the time and at a fraction of the cost.

And so it is with financial planning – you do it yourself or you can call the financial “plumber”.

Partly as a result of the DIY approach there has been a proliferation of “direct” insurance companies that have sprung up over the past years encouraging people to go direct, to cut out the middleman, to save on commissions and fees…and while this all sounds very attractive it is, in my experience, hardly ever true.

I wrote a while back about how expensive 1LifeDirect is compared to using a broker (https://www.thefinancialcoach.co.za/2010/03/18/1-life-direct-misleading-advertising-so-expensive/) and now it is the turn of new comer, OUTsurance Life.

I finally managed to get a quote from them after a few emails, a blog post about their poor service and then spending 40 mins on the phone with a very polite and friendly call centre agent. Towards the end of the conversation as he built up to the crescendo of his sales pitch he proudly announced to me that I was an “excellent” candidate for life cover with them and that as a result I would qualify for a very competitive premium. Bearing in mind that they have advertised that there was no advisor and therefore no commission on the policy I was expecting something quite attractive.

And here is the problem – it was R220 per month (almost 53%) more than a comparative quote through an insurance company (where the commision has been removed) and even with full commission on the comparative quote it was still 22% more (see below).

So let the old warning apply: Caveat emptor – or Let the buyer beware. By all means follow the DIY approach and go direct but beware – there are a lot of “lies, hype and spin” (also known as marketing) out there and just because it says there is no advisor and therefore promises to be cheaper, it does not necessarily mean that it is. My advice is this – rather find an advisor/planner who can supply you with the product you need without the commission costed into and and pay him/her a fee for the work that they do for you.

Comparative quotes from OUTsurance Life and Altrisk Insurance Company for a 43 year old male – R2million life & R300k dread disease cover:

OUTsurance (no commission): R644 pm

Altrisk (with commission): R529 pm

Altrisk (no commission): R422 pm

And on top of this, OUTsurance promised me an OUTbonus of about R3800 in 5 years time…attractive indeed but if you take the R220 that you would save by using the Altrisk product and saved it for 5 years (without any growth on it) you would have more than R13000 in 5 years time. Now that would be a BONUS!

Where has all the commission gone?

About 5-6 years ago the Life Offices Association (now ASISA) made the claim that up to 35% of the cost of new business was due to the commission paid on the products (http://www.busrep.co.za/index.php?fArticleId=2627965&fSectionId=552&nld=2005-07-18&t=html&f=d) and that was one of the reasons life insurance products were “expensive” and heavy penalties were levied when these were cancelled before maturity.

As a fee-based financial planner it has always amazed me then that when we dont take commission on life insurance products we never see a 35% reduction in the cost of the cover. There is a reduction but it is nowhere near 35% and not all companies are equal either. So where is the commission going to?

Consider the following case:

R4million life cover for a male age 35 would cost ±R506 per month and the commission that the advisor would earn would be almost R7000. If the commission is removed from the policy (yes it can be done) the premium would reduce to ±R372 pm – that’s a saving of R134 per month (26%) for the duration of the policy. Over 5 years that means you would save at least R8040 in premiums. The question I have is why is it only 26% – where is the “other” 9%?

So I did a bit of comparing and it turns out that 26% is a really good reduction and that most of the insurance companies are only reducing the cost of the cover by 15-20% (see table below – these figures are based on quotes for life and disability cover on my own life):

Company Std No comm % Diff
Liberty R 997 R 801 20%
Discovery R 862 R 732 15%
Myriad R 985 R 822 17%
Sanlam R 524 R 445 15%
Odyssey R 778 R 631 19%
Altrisk R 1 153 R 850 26%
OM R 951 R 761 20%

From the table above it is pretty clear that none of the companies is giving the full 35% reduction that the LOA spoke about  and many of the companies also appear to be “holding back” some of the commission that would have been paid (I can only guess where it is going).

In my experience, Altrisk, which has a 26% reduction,  is consistently the best company when it comes to reducing the cost of the cover when the commission is removed (they also have a really simple but highly rated product).

So where to from here?

My advice to you is the next time you consider taking out some life insurance, ask your advisor what the premium would be if there was no commission on the policy and then ask him/her what fee they would charge you to do the business – you could end up saving quite a bit of money if you are prepared to pay a fee for the work that is done (typically we would charge between 2 and 3 hours for the implementation of a life policy). So on the above R4million example, you would pay a (maximum) fee of 3*R750 = R2250 to us (we allow our clients to pay this off over a few months if necessary) and you would have the lower premium for the life of the policy – this way you can also be satisfied that if the advisor recommends any additional benefits (such as disability or dread disease cover) they are not doing it to increase the premium and thus increase their commission – they are doing it because it is in your best interest. Under the commission model, the greater the premium, the greater the commission paid – whereas the premium has no bearing on the advisor’s earnings under a fee model.

1 Life direct – misleading advertising & so expensive!

Just saw the 1Lifedirect TV advert again this evening and it really gets my goat – their advert is so incrediblymisleading. It should come with a huge health warning similar to that on cigarette packets. They were offering a 44 year old male R1million life cover for just under R500 (if i remember correctly) and at the same time boasting about how cutting out the broker would save up to 22%.

While the 2nd part of the claim may be true, what is distressing is that I can buy R1million life cover through an insurance broker for about R190 per month. If I cut out the commission (broker) then that drops to about R144 per month which is less than 1/3 of what they claim to be able to offer without any commission on it.

What an unbelievable bunch of thieves! They are just like any of the other insurance companies in this country and on top of that, their claims to cut out the paper work could provide you with some very nasty surprises come claims stage.

Based on the quotes above, I would opt for the services of a broker every time – even at full commission.