The financial services industry has been unanimous in its condemnation of the Federal Government’s ban on life insurance commissions for products sold through superannuation.

Under the Future of Financial Advice (FOFA) proposals, the ban will apply to individual and group life insurance sales from July 1, 2013.

Financial Planning Association CEO Mark Rantall says the proposal will create a “two-tier system” for life insurance.

“We should be grateful that life insurance commissions have been retained outside superannuation,” he told insuranceNEWS.com.au.

“But we are not sure of the need for commissions to be banned within superannuation, given the underinsurance problem and no evidence of mis-selling.”

MLC Group Executive Steve Tucker says he’s “disappointed” with the life insurance commission ban.

“Commissions have a valid and important role to play as a remuneration option on insurance,” he said.

“Insurance is a very different product to investments, and applying a ban on insurance commissions inside super will have many consequences, which could mean a reduction in the number of Australians who have adequate insurance cover.”

Association of Financial Advisers CEO Richard Klipin says FOFA will increase the cost of advice to consumers and stop them seeking advice.

“One of the unintentional outcomes of FOFA will be that more costs will end up with the client,” he told insuranceNEWS.com.au.

“While clients may opt to put their life insurance outside superannuation, they will lose a number of benefits such as tax relief.”

Mr Klipin says the original intentions of FOFA were commendable, but the proposals have been “a big letdown”.

“The FOFA rhetoric has not been matched with strategy, and consumers have been hung out to dry,” he said.

“While it might be a victory for large superannuation funds and the superannuation lobby cheer squad, it is a dark day indeed for ordinary Australians and their ability to access affordable advice.”

The Self Managed Super Fund Professionals’ Association (SPAA) has welcomed some of the FOFA reforms, but has expressed concern on banning life insurance commission within superannuation.

SPAA CEO Andrea Slattery told insuranceNEWS.com.au the association argued against different rules on life insurance sales.

“There shouldn’t be different forms of advice (for life insurance),” she said. “Life insurance inside superannuation is there for tax and estate planning benefits, and it needs that specialist advice which may not be given outside superannuation.”

All bodies have said they will continue lobbying the Government over the proposals.

“We will continue lobbying until the legislation is introduced – and afterwards,” Mr Rantall said.