So it is said that insurance brokers are the biggest "sharks" in the world. Some maybe in the "olden days", but the FAIS Act of South Africa has seen to it that brokers, or better known now as Financial planners are more monitored and restricted in what they do. For instance, a financial planner is only allowed to market/sell insurance policies or investment plans for which he has been accredited. This means that the financial planner has to have the correct knowledge and ability to be able to do a full "needs analysis" on each client's financial portfolio and financial needs. Not just any financial planner can sell just any type of contract to just any client.
Since the implementation of the FAIS Act, and the increasing publications and transparency, hopefully the industry will start to maintain a name of trustworthiness and reliability.
What is also not usually known is that financial planners' commission is negotiable. There are various ways of paying the commission to the financial planner, firstly you can choose to pay them "up front" which means that they will take the full amount of commission at the inception of your policy and there will be a "loan" account or commission account on your policy. Each month when you pay your premium, a portion of your premium will go toward the commission loan account. This used to be the only way that commission was paid.
This is not a very common practice any longer, since the implementation of the FAIS Act, now you will find more and more that the commission is paid "as and when". This means that the commission is payable to the financial planner as and when a premium is received. The commission portion is then taken from the premium. This is more common on your life insurance contracts.
Life insurance: Very often mistaken for investment. This is understandable, because when these types of contracts first became popular they were designed to provide an investment account as well as life insurance. This does not mean that the investment account is there for dipping into when in need, these investment accounts were designed to buffer the risk so that the premium does not sky-rocket or the risk in carrying the life insurance was not unrealistic. These contracts better known as "universal" contracts were difficult to understand and because of this, they were marketed incorrectly.
Now, life insurance is just that: Life insurance. You pay a premium for life cover, if you die, they pay, if you live you pay. If you cancel you cancel, no cash back, no refunds. Its the same as vehicle insurance, if you don't need it, you pay, when you need it, they pay. It's a simple concept and with better understanding, people know what they are contribution premiums toward.
Remember to read your contract from start to finish when you receive it after taking out life insurance or long term investment. In actual fact at any time you are entering into a contract.
Until we chat again....
Very interesting!
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