CHRISISM #80 - Fancy Some Free Life Insurance?

04 December 2018

Do you ever recommend stand alone Trauma Cover to clients under the age of 50? If so, you may want to rethink – especially given your “Best Interest of Client” duty.

Wherever you may be in Australia, if your client buys stand alone Trauma Cover, then they will pay stamp duty on top of the premium. The level of stamp duty payable will depend on which State you are in, but in most cases it is around 10%. If, however, you add on Death Cover then no stamp duty is payable.

Assuming your client is under the age of 50, then the cost of the Death Cover will usually be less than the stamp duty, thereby constituting a ‘freebie’!

In most cases, your client will require the Death Cover anyway, so not only are they getting this amount of cover for nothing, but they are saving themselves from having to buy the Death Cover elsewhere. And even if your client doesn’t actually need the Death Cover, they might as well have it 

As I said to one female client who was in her early 40s, single, no kids or any other dependants i.e. who didn’t actually need any Death Cover:- “Julie, you have a choice here:- you can either choose who you want this money to go to if you were to die, or you can make a charitable contribution to the NSW State Government in the form of stamp duty – which would you prefer?!”

Quite apart from the stamp duty issue, I would be wary of recommending stand alone Trauma Cover because of the 14 day survival period that applies. If you have motivated your client with the “Irresistible Combination” (see Chrisism#14) and they therefore regard the Miracle Product as a fantastic opportunity rather than a grudge purchase, then they will no doubt have waxed lyrical to their spouses about how, if they were to suffer cancer, a heart attack or a stroke, then the policy will pay out $500,000 (if that was the sum assured). So suppose a few years later, the client suffers a heart attack and dies 10 days later, how much money is the widow expecting to get? Answer:- $500,000; and how much does she get? Answer:- nothing, because he died within 14 days.

How the hell are you going to explain this to the widow? So if you have any clients with stand alone Trauma Cover, I sincerely hope that you have documented in the SOA and the file notes exactly how the 14 day survival period works, so that the lack of any payment doesn’t come as a huge shock to the widow and/or the deceased’s family.

Alternatively, add Death Cover to the policy.  

The Risk Workshop by Chris Unwin

Are you a financial adviser who would like all of your clients to have appropriate types and levels of personal protection? But perhaps you feel you need a more structured and client friendly engagement process?