Life Insurance in Canada

Regarding the commission payment for the insurance brokers, it doesn’t make a difference whether they are captive (working for only one company) or independent (for more companies), as all of them get their commission when an insurance policy is activated. Two advantages of working with a broker are that they can advise you on the best type and amount of coverage and they can search the market for the best premium. Of course, the agent receives his/her commission paid from the insurance company. Nevertheless, the media and consumer scepticism has done a lot to create misunderstanding. The main points regarding the payment process that are most commonly misunderstood will be described in the following paragraph.

“Life insurance commissions drive up the price of the policy.” Life insurance policies, whether sold by salaried employees or self-employed advisors, have distribution costs. The insurance company includes the price of distribution inside the price of their products. It usually doesn’t make any difference how the consumer buys the product. Some companies, for instance RBC Insurance or Manulife, charge the same premiums for the same life insurance sold via multiple distribution models. If you buy a $200,000 Term 10 policy from Manulife, you will always pay the same price - whether you get it via their call centre, website or use the services of an independent broker. “It is possible to negotiate the life insurance commissions.” That is not true, they are not. The situation is different from when you are buying a car or a house. Once again, the commissions are built into the distribution costs of the policy and cannot be changed.

“The commissions for Whole Life or Universal Life insurance are higher than for Term Life insurance.” In reality, the price of a life insurance policy influences the height of the commission for the agent - the higher the premium, the higher the commission. Whole and Universal policies have higher initial premiums than Term policies, but the Whole and Universal policies are bought once. Term policies increase in cost as the insured gets older, so they will buy multiple term policies over their lifetime. A commission is paid for each new policy, but what is crucial for the consumer is that each time he/she purchases a new policy, he/she is also older, so the policy price is therefore higher. The insurance rate also depends on the health status of the applicant - in case it has changed, the insurance rate will increase or the coverage won’t be available. For the applicants it is really crucial that they understand the difference between all the life insurance policies and that they know which one is the optimum choice for them. “The commissions paid by some insurance providers is better than from others.” It is true that one carrier might pay a slightly higher commission than another one, but the differences are only small. And the customer doesn’t need to care about this anyway, since the commissions are a fixed cost within the policy. It is however very important that your adviser has access to insurance from multiple carriers, as some of them, while independent, work only with two or three. Our advisors have access to 15 different life insurance carriers, ensuring you get the a best possible price.

Photo source: Tim Dorr