In this the second of a three-part series, BT’s Crissy De Manuele considers more of the fundamentals of life insurance advice through the lens of regulation and compliance. She pays particular attention to ASIC’s October 2014 Report 413 Review of Retail Life Insurance Advice and outlines why advisers need to heed the content of this report.
Crissy’s observations may act as a refresher for established risk specialists and may also provide much-needed direction for new entrants or those advisers who aren’t steeped in the world of life insurance advice…
In this article, we continue to break down the elements of valuable life insurance advice. We turn our focus on requirements regarding the amount and types of cover, and whether the insurance should be held inside or outside super.
As discussed in the first article of this series, navigating regulatory or compliance frameworks can be onerous; however, they can also provide useful guidelines on providing valuable advice that can win clients’ trust and build relationships that last.
Across three different articles, we discuss some of the elements of life insurance personal advice advisers may weigh up when assessing a client’s life insurance needs:
- Premium comparisons
- Relevant product features
- The amount of cover required to meet the client’s financial goals
- Underwriting pre-assessments
- Previous claims history
- Ratings from research houses
These various elements of life insurance advice are also the subject of ASIC’s review of retail life insurance advice, Report 413. However, instead of taking a compliance perspective, we take a practical approach, and focus on providing advice that clients may perceive as adding value.
Amount and types of cover
According to ASIC Report 413, an adviser should keep documented evidence of the advice provided which explains how the recommended sum insured may meet the client’s needs and objectives.
There needs to be engagement with the client to help them arrive at the right type of cover that is appropriate to their individual circumstances and also affordable for them over time. This is the ‘value add’ of life insurance advice to a client.
It may be appropriate to consider whether life insurance cover should be held inside or outside super. The most appropriate solution for the client may depend on factors such as:
- The types of cover and product features the client requires
- The definitions of the products available inside and outside super
- The client’s retirement savings goals
- Tax effectiveness of holding the cover inside super
- The client’s health status
- The client’s beneficiaries
Where it is established that it is appropriate for the client to hold insurance inside super, but the client requires a type of insurance cover or features which cannot be held inside super, super-linking could be considered. Super-linking allows certain types of cover to be held inside super, whilst being linked to cover which is held outside. This generally allows most of the premium to be paid from within the super fund.
Advisers should keep documented evidence to show why they recommended a particular insurance product over other products. It is also necessary for advisers to understand their clients’ circumstances, financial goals and objectives. Detailed file notes should be kept and the client’s statement of advice should include a description of their individual circumstances.
This will then allow advisers to tailor their advice for each client, and match their needs to product preferences, after the adviser has conducted reasonable research into different products. This will result in a solution which provides the best fit for the client.
Advisers should also consider the types of insurance and levels of cover which will meet the client’s goals and objectives.
In the final article of this three-part series, we will discuss underwriting pre-assessments, clients’ previous claims history and research houses’ product ratings.
Crissy De Manuele is Senior Product Manager, Life Insurance, BT