Choice Chairman Jenni Mack wants the advice component of life insurance to be paid for through a fee.

She says the advice and product sale should be separated and charged accordingly.

“When a consumer buys life insurance, there is an advice component that is included in the sale by the advisers,” she told insuranceNEWS.com.au.

Ms Mack says a commission could pay for the sale component of a life insurance policy, but she argues this has done little for the poor take-up of life insurance by Australians.

“If commissions have no effect on the consumer, how can there still be the underinsurance problem after all these years?” she said.

“Commissions are not the answer to dealing with underinsurance, as in the worse cases we see up-front commissions of 130%.”

Ms Mack also wants the ongoing fees stopped, as she believes it provides little benefit to the consumer.

The argument for keeping ongoing fees, or trails, is that they cover the adviser’s costs when there is a claim. But Ms Mack says most consumers make the claims themselves and often face a struggle to receive the payout from the policy.

She dismisses suggestions the consumer would be better off using an experienced adviser to deal with the claim.

“If you remove all the commissions from life insurance products, the costs will come down and consumers can then pay for the advice they actually use,” she said. “If you take out the commissions, the price of insurance will fall.”

Ms Mack does not accept that the cost of life policies is more influenced by an actuary pricing the risks of the person being insured.

The life insurance industry is still awaiting a Federal Government decision whether to exclude commissions from the looming Future of Financial Advice legislation.