Financial advice shared makes for protection doubled

Tim Browne shares his views and presents some case histories as he surveys the much-debated topic of banning commissions for risk insurance within superannuation.

Plenty of robust debate has surrounded the proposed move to ban commissions for risk insurance within superannuation since Assistant Treasurer Bill Shorten’s April announcement as part of the proposed Future of Financial Advice (FOFA) reform package.

Many across the industry believe the ban could force advisers out of the industry and boost Australia's underinsurance problem. 

I have heard many stories over the past six months of clients that have benefited from the advice they received. Conversely, it is easy to see how the outcome could have been very different had these individuals not received advice.

I have selected a few of these case histories and present them following as examples of some of the types of stories you can share with your local Member of Parliament (MP).

There remains an opportunity to lobby Government and independent MPs on the proposed reforms, which would not take effect until July 2013, if approved.

We each have a continued role to play in communicating to Minister Shorten the value of insurance advice, whether this is through our industry bodies, regulators or local members.

 Case study one: matching insurance cover to the client’s needs 

The client needed to increase their insurance cover from $2.5 million to $9 million, but did not think it was possible due to large debts incurred through the family business, and the subsequent increase in financial underwriting requirements.

The adviser worked to educate the client and work in co-operation to identify opportunities to ensure that these requirements were met.

The insurance was successfully completed. Two weeks after the cover was in place, the client died in a solo pilot air crash. All claims were successfully made to the client’s partner. 

Case study two: persevering to get insurance in place

This client was a mid-level income earner, self-employed and had a fully financially dependent family.

The adviser emphasised the need for trauma insurance to assist in paying the client’s mortgage should something happen to him to render him unable to work.

After some education, the client agreed to purchase trauma insurance. 

Aside from money, the client’s biggest objection to purchasing this cover was that he was a very healthy person.

However, nine months after purchasing the trauma policy the client was diagnosed with Multiple Sclerosis.

The benefit payment assisted the client to pay down some of his mortgage, relieving financial pressure on him and his family.

The client readily acknowledged that had he not been provided judicious advice he would never have initiated the insurance. 

Case study three: impact of having continued cover in place

In this scenario, the adviser recommended $2.3 million of death cover.

He suggested the policy be held through the client’s super fund so that it would not lapse, since he was using the fund assets to pay for the premium; in addition, the client would be eligible for a tax deduction on the premium.

Within 12 months, the client died from a sudden heart attack, leaving a young widow and three children under five years old.

The proceeds from the policy enabled the widow to buy her own house (they were renting at the time of her husband’s death) and income from the remaining capital allowed the widow to maintain her homemaker role. 

Had she needed to go back to work at that time, then the children would have been faced both with adapting to having lost their father, and also of being able to spend only minimal unfractured time with their surviving parent.

In cases like this, superannuation asset accumulation is less important than protecting debts and providing guaranteed income for their survivors. 

Tim Browne is the general manager of retail advice at CommInsure.