Insurance Commissions, Compensation, and Other Fees
When you purchase a Life Insurance policy, compensation is paid to your insurance advisor in the form of commissions. This is the industry norm in Canada.
At Cove, we believe in full disclosure and transparency when it comes to insurance commissions. We will always disclose this information to our clients. We believe that the value that we deliver justifies the compensation that we are paid. We’re happy to articulate how that value is delivered to the client.
This page includes information about how commissions work in the industry, so you’re aware of what questions to ask your insurance advisor (whether that advisor is through us or another company).
Why do Advisors Receive Compensation?
Commission is offered on the sale of Life Insurance policies for a few reasons:
- as a revenue stream for advisors
- to account for ongoing servicing of policies (i.e., by paying a commission, you gain access to ongoing advice and service from your team of professionals)
- to bring together a team of professionals (e.g., accountants, lawyers) in complex situations—in some of these situations, compensation may be shared amongst team members and can save the client from having to pay separate professional fees
How does Life Insurance Compensation Work?
Life Insurance compensation is made up of three parts:
- First Year Commission (FYC): the basic compensation on a Life Insurance policy
- Additional Compensation: determined by the total amount of insurance an advisor sells with all companies
- Renewal Commissions: a set annual commission that may continue for the life of the policy
When asking your advisor about their level of compensation they’re receiving for the sale of your policy, it’s important to ask about the total compensation (which includes additional compensation, not just the first year commission).
Is Compensation the Same for all Products?
No. There are more variables when dealing with Life Insurance commissions, whereas commissions on Disability Insurance and Critical Illness Insurance sales tend to be consistent across all products.
A Note on Whole Life vs. Universal Life commissions…
Whole Life insurance pays significantly more commission than a Universal Life insurance policy. Universal Life insurance policy is approximately 55% of the compensation paid on a Whole Life policy.
|Plan||Whole Life||Hybrid Life||Universal Life|
|Premium (10-Pay)||$45,111 x 10||$45,111 x 10||$45,111 x 10|
|First Year Commission||$41,770||$21,223||$20,443|
Cove does not sell Whole Life policies because of the poor performance relative to other permanent insurance options available. In our opinion, Whole Life is not consumer accountable. (To read more about why we do not sell Whole Life, click here.)
The higher compensation Whole Life offers can be a motivating factor for some advisors. The fact that the Universal Life insurance policies pay significantly less compensation speaks to our objectivity in terms of the recommendation of products that we advise on.
Do I Have the Right to Ask my Advisor to Disclose their Compensation?
Absolutely. The challenge is that there is no regulatory requirement for compensation disclosure around the sale of Life Insurance. Cove may be the only advisory firm to disclose commissions on product options as part of the planning process.
The current practice is that a Life Insurance advisor will typically not disclose the compensation on a policy unless asked. But you have a right to ask for it! (And we will tell you upfront!)
What information should I Ask My Advisor Regarding Compensation?
We strongly recommend you ask your advisor to disclose the amount of compensation they’re receiving on the sale of your Life Insurance policy.
The following is a list of additional information we recommend you consider when buying a policy.
- Determine the track record of your advisor. What amount of in force insurance business does the advisor have under administration? It should include the amount of Life Insurance, Disability Insurance, and Critical Illness Insurance. What is their claims payment record? What is the persistency rate of their policies over the years? How much Whole Life insurance is included in their in force policies? See our current Impact Report for details about Cove’s in force insurance and persistency rates. Click here
- Determine compensation in terms of a client’s ongoing support team. The total amount of compensation paid to the advisor should be viewed in terms of the support and the team that you have at your disposal if you buy the policy from that advisor. If you buy a policy from an advisor who does not have any assistance of any kind or does not work within an advisory team, then you know that that compensation is significantly going to that advisor, whereas if you’re working with an advisor who has an advisory and support team behind them, then you know that the compensation needs to be allocated to the resources at your disposal. You want to have a client support team that will be available to you to answer questions and provide you with the comfort you need to know that your policy is in line and operating as expected for the life of that policy.
- Determine the continuity plan for the insurance advisory service. It is important that the continuity plan support you long term since a Life Insurance policy is typically purchased for many years into the future. Insurance is long-term…is your advisor going to be there when you need them?
- Consider the company’s social and environmental responsibility. Does the company care about issues other than just profits? Ask questions about the advisor’s or firm’s commitment to social and environmental activism. This is an area that affects all of us, and there is much that a company can do to be a responsible company. How does the firm treat its employees? What causes do they support? How do they verify their social and environmental giving? These are important questions because consumers have a significant impact on how companies do business through the votes they cast when they purchase products or services. Clients’ votes count more when the company’s values align with those of the clients, and it allows the client to feel good about their purchase in a non-selfish way. Don’t be afraid to ask pointed questions. Learn more about our commitment to social and environmental causes here.
What you should expect from your insurance advisor:
- Highly qualified advisors
- Extensive capabilities and resources
- To be treated with respect
- Given all required information to make confident decisions
- Excellent ongoing service
- No pressure tactics
- Values aligned care
Fee for Service
There are two types of standard fee for services:
- Planning Fees: based on the amount of work required to prepare a plan
- Service Fees: determined in order to maintain the ongoing service of a plan or policy
Note: It’s possible to have planning done on a fee-for-service basis or on a commission-contingent basis. Consider: If the planning is done on a commission-contingent basis, are you getting objective advice? If the planning is comprehensive, expect to pay a fee. It requires significant resources to provide top quality planning.
Cove’s Policy on Donating Commissions to Social and Environmental Causes
Where a client has set up a policy to provide for charities, Cove will contribute part of the commission to that charity. This is in line with our value to use business as a force for good.
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