Photo by John Althouse Cohen

Someone giving free lunch

I get to learn of a big IFA firm giving one year free term insurance from a particular insurance company(Insurer A). This is probably a marketing tactic to create new business for the company and their advisers. I get to know about it when one of my prospects went to that IFA firm and took up the Sum Assured that I’d recommended. The premium from that insurer is about 10% – 15% higher than the insurer(Insurer B) I’d recommended. (Example $1,190 Vs $1,060p.a; $130 more expensive).

Analysing that free lunch

On analysing the remuneration structure from Insurer A, they are paying 60% commission and 95% over-riding to that IFA firm. This means that the IFA firm will get 60% + (60% x 0.95) = 117% of 1st year premium. For a premium of $1,190, the firm will get $1,392.30 as first year commission. We have not factored the 2nd to 6th year commission which adds up quite substantially too.

What if Client surrender policy after 1 year

Even if the client surrender the policy after 1 year, the firm will still earn $202.30. Why? Read more…