Two possible money-saving opportunities crossed my desk last week that are worth sharing – one is a possible way to save on the considerable commissions that are paid on the purchase of life insurance products and the other is a substitute for car ownership.
LowCommission.ie is a new, direct, online insurance intermediary that offers protection insurance products from four insurers: Irish Life, Friends First, Aviva and Caledonian Life.
Last week, Dublin City Council’s transport and traffic policy committee recommended that the full council put in place new by-laws to allow car clubs to set up on the capital – a vote will take place on December 3 and if that passes a public consultation place will take place in the early new year. Car clubs let members pick up and drop off cars, usually for short-term use with huge savings for people, like me, who have a car sitting outside their house unused for most hours of every day.
First, LowCommissions.ie claims that by cutting out the broker middleman their customers can save a sizeable amount of the commission that brokers receive on every protection policy sold. The commission can amount to as much as up to 150% of the first year’s premium plus annual renewal or ‘trail’ commissions from year two.
So how much could you save? As much as an 80% to 100% discount of the commission element of the life insurance, mortgage protection, serious illness and income protections premiums, says Sharon Doyle, the company’s marketing director.
“In 2011 alone, over €90 million of new life assurance or protection policies were routed through brokers and banks in Ireland. The quantum of commission generated by this is conservatively estimated by LowCommission.ie at about €81 million. The cost of this commission is ultimately borne by the consumer.”
Let’s look at one of the savings examples provided – a couple seeking mortgage protection insurance:
“A couple who bought their first house in 2007 for €380,000 are aged 36 and 33 respectively and both are smokers. Their current outstanding mortgage is €362,000 with 30 years remaining. The quotes for a mortgage protection plan – life cover only would be as follows:
• Cheapest available price in broker market: €80.81 per month
• LowCommission price: €67.07 per month
• Total savings: €4,945.57 over the term of the policy
This is a very substantial savings, but describing it as the cheapest available price in the “broker market” suggests to me that the direct online market may not be part of this comparison, though LowCommission.ie may very well be offering the biggest discount of all.
Discounting commissions on protection policies is already common amongst many financial advisers, especially fee-based ones. Anyone buying a large, fixed-term, fixed-premium life assurance premium and paying an adviser’s fee should be entitled to 90% of the first year’s commission. The balance paying the actual cost of the cover for that year.
Straightforward term life insurance is not a complicated product, but where the policy is more nuanced – like serious illness or income protection cover – it is better to use a fee-based financial adviser who holds agencies with all the insurers, not just a select few, and who can explain all the conditions, exemptions and tax implications of the recommended policy. Heavily discounting online brokers work mostly on an ‘execution-only’ basis.
Now to car clubs, which are now available in most good-sized towns and cities in the UK and other countries.
Last week Dublin got that much closer to having such clubs, and if they do work in the capital (from next year if the City Council approved them) they might also appear in other Irish town or cities.
At the moment, GoCars operates in Dublin and Cork, but only from fixed locations (like indoor car parks) where members must pick up and drop off their short-term use cars. On-street car clubs allow members to check where the nearest available car is, to pick it up, use it and then drop it off at the same or different on-street location. The longer you use the car and the further out of designated zones you leave it, the more it costs.
The attraction of car clubs is that the member “pays-as-they-drive,” contributing through their members and usage fee for their share of the capital investment, insurance, tax and petrol. With typical annual running costs between €4,000 and €10,000 a year for most families in Ireland (depending on the age, size and value of their vehicle), not utilising any car fully is a high cost to pay for the convenience of being outside your door at all times.
This column has written many times about how low-event car users and even short-distance commuters would benefit financially by using taxis regularly compared with the cost of car loans, insurance, tax, maintenance and petrol for a car that is driven for just a couple of hours and then left parked outside your office or home. Even renting a car for holiday travel is cheaper than low-use ownership.
City authorities like car clubs because they lighten traffic and parking congestion and carbon emissions. The city still enjoys parking revenue from the club and,, unlike the DublinBikes scheme has no cost input since the clubs will use existing infrastructure.
We don’t know yet how much car club membership and usage fees will be, but it’s a pretty sure bet that owning a car is going to go up after the December 5 budget.
If car clubs become a regular feature in towns and cities in Ireland, for a fraction of the cost for occasional drivers (or two car families), it will be the greatest act of revenge against the taxman… until he figures out a way to get into the act himself.