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Life insurance quotes and broker commission

This article starts its journey in Europe where the EU has a uniform requirement in all member states that everyone who sells insurance must disclose exactly how much commission will be earned through a sale of all the insurance policies recommended. The purpose of the rule is easy to understand. When you go into an agency or brokerage for advice, you have no idea which insurance companies pay the highest rates of commission. For all you know, the supposedly independent advisors might only recommend those policies offering them the highest commissions regardless the quality of those policies to you. Hence, all advice and every recommendation must be accompanied by a breakdown showing how much of the premium payments go to the agency and how much to the insurer. In the short term, it can make the difference of several hundred dollars in premium rates and a choice between insurers offering a good service and those who are only interested in their own and the agency's profits. In the long-term, it can make the difference between an insurer that offers a good rate of return on the cash sum, and one that takes a big management/administration fee every year no matter how well or badly the investment performs.

We now cross the Atlantic to the New York Department of Financial Services. In January 2010, it introduced Regulation 194 which required all agents and brokers to disclose not only the commission payable on each sale, but also the details of any terms and conditions that might affect the amount of the commission. Needless to say, the professional associations representing the agents and brokers violently objected while the DFS was consulting on the proposed Regulation. When those objections were ignored and the Regulation signed into law, the associations sued alleging the DFS was not acting with the scope of its authority to force disclose of confidential information. March 2012 has seen the professional associations lose their appeal. Both the first instance and appeal courts take the view that the public interest is served by these disclosure rules. Indeed, in arguing the case, the Attorney General said that, for too long, the agents and brokers had operated under a cloak of secrecy, while other professionals were obliged to disclose, e.g. mortgage and stock brokers. In reaching its decision, the appeal court also referred to the settlements voluntarily agreed by the insurers and their brokers which paid more than $1 billion in compensation to consumers who had suffered losses.

It is a stunning gap in federal law that these disclosure requirements are not imposed on all agents and brokers throughout America. As consumers, we deserve the maximum transparency, particularly when we may be buying a policy that will pay tens of thousands in premiums over long periods of time. Although the life insurance quotes may come free, the real cost in hidden fees and commissions can represent major amounts of money over our lifetime. Surely we, as consumers, should be up in arms demanding full disclosure rules for all financial products in all states. If this is not to be the case, the Insurance Commissioners and every State Attorney should be very proactive to ensure all life insurance companies offer fair value to consumers. Someone should be looking out for our interests.

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