The Association of Financial Advisers (AFA) agrees with stamp duty on life insurance policies being included in commission calculations, but says some issues will need to be addressed.

“There are practical considerations around how life insurance stamp duties on the premium of term life products are administered in the first year of a policy that warrant consideration,” the

AFA says in a submission to the Senate Economics Legislation Committee.

Stamp duty is embedded in the cost of the policy and varies from state to state, the association says.

“The rationale for life companies taking this approach is the stamp duty in the first year represents a small amount,” the submission says.

Stamp duty on a policy with a death benefit varies from 5% in NSW to 1.5% in SA.

“Life insurance stamp duty therefore represents less than 1% of the total premium,” the AFA says. “Commission is payable on the entire premium, inclusive of this stamp duty charge.

“Therefore, term life product stamp duty is immaterial from a commission perspective.”

The AFA argues if commission calculations exclude stamp duty it would prompt a significant change to life insurers’ software.

“There would be little if any consumer benefit to altering systems to ensure commissionable premium did not include term life product stamp duty,” the submission says.

“It would provide such little impact on the amount of commission paid to advisers that it would not justify the build cost, and in fact it could result in clients paying more for first-year cover than they do now.”

The AFA argues the July 1 implementation date will not give the industry enough time to change systems.

“It is worth noting these administrative costs could be avoided completely if stamp duties on life insurance products were abolished,” the submission says.