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Your projections assume no yearly increase in annual premium cost or no annual review fee charged in the first 3 years.
Stepped premium basis makes up the vast majority of cases due to ridiculous break even points for Level premium and the ability of the insurance companies to increase the level premium rates,thereby not guaranteeing the longevity of premium benefits.
So, if we take the first yearly premium at $4000 (inclusive of adviser commission) and project that forward with a 10% premium increase each year based on a Stepped premium model, the second year will calculate at $4400 and the 3rd year at $4840. Total premium paid over 3 years of $13,240 and the adviser has received the initial commission of $3200,the second year renewal/review commission of $880 and the 3rd year at $968.
As you haven't projected the annual premium increase in your example or included the cost of the annual review, lets build that in.
First year cost to the client $2800 (product) and $3200 (adviser fee) = $6000.
Second year premium (+10%) = $3080 PLUS annual review fee of $880. (equivalent to 20% commission model)
Third year premium (+ 10%) = $3388 PLUS annual review fee of $968. (equivalent to 20% commission model)
Total cost to client over the first 3 year period based on net premium/fee for service model $14,316.
Total cost to client over first 3 year period using existing commission model $13,240.
Cost saving to client over the 3 year period = $1076.
In addition, the client has been able to afford and implement the required level and type of insurance at an initial first year cost of $2000 LESS than the net premium/fee for service model.
In this example, if the client could only afford a maximum TOTAL spend of $4000, either the level and/or types of insurance cover may then have to be reduced or diluted thereby exposing the client to greater financial risk in the net premium/fee for service model OR the adviser would place the appropriate level and type of cover required AND NOT BE ABLE TO CHARGE AN ADVICE FEE BECAUSE THE CLIENT CANT AFFORD IT !..........hence, 10 hours of advice, strategy , documentation and medical follow up negotiation and 3 client appointments for no payment.
Under the commission based model, the client receives the required cover at an affordable cost, the adviser receives appropriate remuneration both initially and ongoing and the cost to the client over the first 3 years is $1076 less.
On this basis, any proposal to remove the option of clients being able to pay for personal risk insurance advice via the existing commission based system under the LIF model is completely flawed and is not in the clients or consumers best interest.