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Using a Life Insurance Broker vs Buying Direct: Know Your Risk

You might want to purchase life insurance direct from the insurer, through your bank branch, or through a life insurance broker.

Russell Cain

Fact Checked

Updated: 20 May 2024

Choosing whether you buy direct or through a broker should depend on your personal preference and how much legwork you’re willing to put into finding the right policy. Before you make the decision carefully consider which option will protect you against underinsurance.

An insurance specialist can save you time and money while helping you understand the details of a policy. But, you don’t have to use a broker to buy life insurance.

If you’ve done the research, compared a variety of policy types from different life insurance companies, and understand all the terminology, buying directly from the provider might be a good option for you. However, a broker can help you find a cheaper life insurance policy faster while assisting you with the application process.

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This article aims to explain why the do-it-yourself approach of buying life insurance directly might not be a substitute for getting advice and feeling confident in the purchase and budget, especially when it comes to determining how much coverage is enough.

Why buy life insurance direct from the insurer?

Buying insurance directly, generally refers to purchasing coverage straight from the insurance provider, usually the life insurance company or a bank, without any financial advice or guidance.

Consulting with a life insurance specialist can take more time while buying direct is usually faster if you have a solid understanding of the right types of insurance to purchase. However, the insurance provider can provide you immediate access to information and support regarding the policies they sell.

There are usually far fewer questions about your health asked upfront, which could lead to immediate acceptance, although it might also result in more limitations and exclusions being placed on your policy to protect the insurer against the possible risk of providing you coverage.

Although buying directly can be quick and easy, there are factors that can make it a challenge, for example, complicated medical histories, various occupational types, and extensive financial obligations.

When it comes time to claim, buying directly could cost you more because your benefit amount could be reduced or denied due to the exclusions and limitations you didn’t see in the fine print of your policy documents.

What is an insurance broker?

Insurance brokers in Australia can provide personal or general financial advice. Depending on the type of financial advice they provide, a broker is usually a person experienced in helping customers find the right insurance policy to suit their circumstances and budget. They are generally in the loop regarding changes, improvements and new insurance products and have an AFS license.

What does an insurance broker do for you?

A life insurance broker is typically focused on providing their clients with solutions by comparing different policy types from a variety of insurers, then offering you quotes and financial advice with the intent of helping you choose an insurance product. They are also supposed to review your situation annually and inform you of any short comings regarding coverage.

Do you need a broker for life insurance?

Whether you need a broker depends on your personal preference, as well as your level of life insurance experience and knowledge. If you already know what you want and where to find it, purchasing directly from the insurer may be the way to go. However, you might need a life insurance broker if you’re just starting out and know little about insurance or if you’ve undergone a significant life change and need help comparing a variety of policies.

Life insurance specialists generally have one objective, offering products to you that are in your best interest, because they usually don’t have ties to a particular financial product and are not pressured by one company to meet sales goals.

The benefits of working with a life insurance broker

Life insurance brokers in Australia are not created equal. Be wary of those that represent a single company and whose advice is likely linked to product sales when deciding between a life insurance broker vs direct.

Financial advice is designed with the intent of influencing your choice of insurance product. An insurance specialist can either provide personal financial advice, general financial advice or factual advice, depending on their competencies and licence.

Types of financial advice

Personal advice

A financial adviser offering personal advice, must hold an AFS license, and will generally provide you with specific recommendations that are tailored to your needs and circumstances.

What is scaled advice?

Scaled advice can be defined as personal advice that is limited in scope. All personal advice is scaled to some extent, because advisers must use their judgement and expertise to ensure the range of their advice meet their legal obligations, including being in the best interest of the client.

General advice

Brokers offering general advice should have an AFS licence and can provide you with relevant insurance insights, so you have all the information you need to make an informed and confident decision. However, they will not take your personal goals and situation into consideration.

General advice warning

Life insurance brokers offering general advice must have a general advice warning on their documentation and/or website, for example: “This information is general in nature and might not reflect your personal financial objectives, situation or needs. You should carefully consider an insurer’s product disclosure statement (PDS) before making any decisions to purchase a product”.

Factual advice​

This type of broker only provides factual information and does not offer advice, either general or personal and does not consider your relevant circumstances. They do not need to obtain an AFS license to provide factual information.

By providing ComparingExpert with an initial quote request, you can review price on screen in seconds and compare features and benefits from leading life insurance companies side by side. When you apply, a life insurance specialist will contact you to follow up on your selection and provide you with more information regarding the types of cover available, so you can feel confident when making a decision.

Frequently Asked Questions and Answers

Life insurance brokers will generally search the market and compile a number of options to help you find the best rates for a policy that meets your requirements. Because the insurance market is so competitive, insurance providers might provide brokers with better rates to get their business.

Despite what direct insurers might say on their advertising, it’s not necessarily cheaper to cut out the middleman. Having options placed in front of you and explained by the broker might save you a lot more money in the long run, especially when describing whether the newest bells and whistles would be beneficial to your circumstances.

You can search for a broker using the National Insurance Brokers Association (NIBA) which has a Need-a-Broker service helping you find a registered, qualified insurance broker in your area.

Life insurance brokers are usually paid a commission from the insurance company to sell their products. However, some financial advisers providing personal advice act on a fee-for-service basis and may charge you for their services, which will be set out in their Statement of Advice.

It’s best to check your product disclosure statement (PDS).

General financial advice is not deductible, because it’s the company that pay the brokers, not the insured person. Specific financial advice may be tax-deductible. Your insurance broker will be able to provide you with this information.

In Australia, insurance brokers providing personal and general advice must be registered with the Australian Securities and Investment Commission (ASIC).

ASIC is the single Commonwealth regulator responsible for the market integrity and consumer protection in connection with term life insurance, including the licensing of financial service providers.

Under the Corporate Act, insurance brokers providing financial advice, must hold an Australian Financial Services Licence (AFSL) and maintain the minimum training and competency standards.

The Future of Financial Advice (FOFA) reforms is focused on improving the quality of financial advice in Australia, helping retail clients obtain access to financial product advice that is trustworthy, affordable and accessible.

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Specialist

Russell is the founder and CEO of Life Insurance Direct and has been quoted in The Sydney Morning Herald, The Age, Independent Financial Adviser, Risk Adviser, Adviservoice, and Insurancenews. Russell has over 15 years’ experience in the Australian life insurance & financial services sector and is instrumental in driving the latest innovations in our insuretech platform.

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