Generally speaking, term life insurance, as well as other types of life insurance, can be bought one of three ways: ‘direct’ from a provider; on an ‘advised’ basis through a life insurance broker or financial adviser; or you may have life insurance through your super fund, sometimes by default.
If you understand your insurance needs and are confident in the type and amount of cover you need, you may find it a fairly straightforward process to buy life insurance directly from an insurer or by speaking to your super fund.
However, if you’re thinking of taking out life insurance but aren’t sure how much you might need, or aren’t comfortable taking it out by yourself, you may want to consider a life insurance broker as an option.
What is a life insurance broker?
A life insurance broker is a product specialist whose job it is to help you identify and purchase a life insurance policy suitable for your needs. Life insurance brokers generally have a thorough knowledge of the life insurance market and the products available, which may help you make a more informed decision if you do take out a life insurance policy.
However, it’s worth keeping in mind that some brokers may receive commissions from the insurers whose products they sell to clients, and that others may represent or work for only a single life insurance provider, or a limited selection of providers. Their incentive could therefore potentially be to sell you a specific life insurance product, rather than to help you make an informed and unbiased decision regarding which life insurance policy is right for you.
It could be worth doing some research on any life insurance broker you’re considering contacting, so you understand which insurers they work with and how wide of a selection they are likely to offer you. You may also consider engaging the services of a financial adviser, as they can also potentially guide you through the process of taking out life insurance, whether direct or advised. However, it’s worth noting that financial advisers can sometimes also only work for a single company, so it’s just as important to do your research if you decide to seek the services of a financial adviser.
What do life insurance brokers do?
A life insurance broker will generally sit down with you for an initial conversation about your life stage and circumstances in order to ascertain your insurance needs, and figure out what type of life insurance might be right for you. They will then use their product and market knowledge to identify one or more products they think may suit your needs. In some cases, the number and range of products they decide to pick may be influenced by any commercial agreements they have with various providers.
If you choose to proceed, they may then organise a second meeting with you to go over the products they’ve shortlisted, and help you decide which one, if any, are right for you. Keep in mind that you have no obligation to meet again or continue past the initial meeting if you do not wish to.
If you do proceed to a second meeting, it will generally involve the broker providing you with a comprehensive view of the products they’ve selected, and explaining factors such as:
- The potential pros and cons of the products they’ve selected
- How much the premiums on each product will cost
- Any limitations or exclusions that the products have, such as a lack of cover for suicide
- How any health conditions you have, such as diabetes, may affect your cover
- Any jargon or fine print in a product’s PDS
- The application process, and any fees that may apply
- How the claiming process works in the event that you or a family member ever needs to make a claim on the policy
Your life insurance broker may also act as an ongoing adviser and administrative assistant, helping with any ongoing issues or questions you may have regarding your life insurance policy.
How do life insurance brokers make money?
In addition to potentially receiving a base salary from their employer, life insurance brokers typically make money through commissions earned from the providers whose products they sell, through the fees they charge their clients, or a combination of both.
Even if a life insurance broker is independent and not employed by one specific life insurance provider, they may still earn a commission if you buy a life insurance policy through them.
Additionally, or alternatively, a life insurance broker may charge you a fee for their services, whether once-off or ongoing.
Is it cheaper to buy life insurance through a broker?
Whether it ends up being cheaper for you to buy life insurance through a broker or directly from an insurer will depend on several factors, including:
- The size of any fees your life insurance broker charges
- The total cost of your life insurance policy, including any discount your broker may negotiate on your behalf
- What level of cover you require
- How much a similar level of cover through direct life insurance would cost you
Do you need a life insurance broker?
When deciding whether or not to engage the services of a life insurance broker, you may want to consider the following questions:
- Do you need life insurance in the first place?
- Are you clear on how much insurance you need?
- Do you understand the options available to you regarding policy types, and factors such as waiting and benefit periods?
- Are your insurance needs complicated, potentially making it difficult to get a policy by yourself?
- Have you assessed some of the pros and cons of buying advised life insurance through a broker, as discussed above?
- Are you willing to potentially pay a fee for the services of a life insurance broker?
What questions should you ask your life insurance broker?
If you’ve decided to meet with a life insurance broker in order to explore your options, here are some of the questions you may want to ask them before paying for their services:
- Do you work for, or earn commissions from any life insurance provider(s)?
- What are your qualifications? Are you qualified and licensed to provide personal financial advice?
- What will your services cost me?
- Do you think life insurance is suitable for me?
Alternatively, if you decide you want to buy life insurance direct from a provider, you could consider starting your search by taking a look at which policies have received a 5-Star Rating from Canstar. You can also use our life insurance comparison tool to see the full range of policies from our database.