03.Life insurance and homeloans
Commissions on life insurance policies are staggeringly high. The kickbacks on life, income-protection and total and permanent disability policies sold by planners can be weighted so the salesperson receives a large upfront commission — sometimes up to 120% of the first year’s premiums — and continues to receive trails of about 10% in subsequent years. Or, the commission is spread across the life of the policy so the adviser receives about 30% every year for as long as you have the policy.
The companies in the table rebate various portions of these commissions and all but one rebate the full initial commission (iRefund returns 50%). Refund Easy charges $500 to set up new life policies, rebating the remaining commissions. When setting up a new policy, as well as considering buying through these rebate companies if you don’t need advice, insurance through your superannuation fund is often relatively cheap and tax-effective.
Home loan warnings
Mortgage brokers are usually paid an initial commission of about 0.6% of the amount you borrow. They also receive an annual trail of about 0.2% of the remaining loan balance. So, if you spent a few hours with a broker to arrange a $400,000 home loan 10 years ago, initially they would have received $2000-$3000. If after 10 years the loan is worth $300,000, the broker would have continued to receive an annual cheque from your lender for about $600 — a pretty big reward for a few hours’ work a decade ago (and they’d get more if the loan was interest-only).
A few companies in the table, and other mortgage brokers, rebate home-loan commissions, however, there’s a big catch: lenders aren’t allowed to simply redirect the broker authority to the rebate company. To get commission refunds, you need to refinance, get a bigger loan or arrange a new loan with a different lender.
Before switching lenders, weigh up the costs of leaving your present lender against the benefits of the new loan. You need to take into account exit fees and early repayment fees, which are often highest in the early years of a variable rate loan, and always apply with fixed rate loans.
Low-cost lenders that bypass brokers and their commissions can work out cheapest. Our mortgage switching research showed community-based credit unions and direct online lenders are worth considering. Otherwise, a discount broker that refunds part of the commissions from other lenders is worth a look.