The Sky is not Falling in!

The sky is not falling in! The Financial Adviser’s Act definition was carefully crafted to discern between whole-of-life, endowment, and such like – which are plainly contracts that contain a large element of investments (and are therefore category 1) and those which are contracts of term insurance.

If term life insurance is defined as category 1, when the average value and complexity of general insurance is greater, then I can’t think of a product that shouldn’t be category 1. I do not read past comments by the MED as indicating that the intention was to categorise products in this way.

To my mind this appears to be adequately dealt with by the definition in the Act – albeit that it is a little hard to read unless you also refer to The Securities Act. The Securities Act defines life insurance as a security, and then goes on to discuss term insurance as a different set of product. Term insurance is currently exempt from the Securities Act. It was expected that the same should apply in the Financial Advisers Act, hence the definition used being the same as for the Securities Act. I initially read it wrong, but even consultants can be taught and a patient friend took me through it. 

Having said all that, the Act gives the Securities Commission the power to decide the categorization – so they can change their minds. But term insurance as category 1 was not the basis on which this was sold to the industry. 

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