The average insurance advisor earns most of his or her income from meat-and-potatoes products such as term life policies and segregated funds rather than more complex — but better-paying — products.

On average, term life accounts for 21% of commissions and seg funds 17%, according to our survey of almost 200 career agents and brokers across Canada.

However, those averages don’t tell the whole story. Seg funds, in fact, provide more income for many of the advisors surveyed; higher average numbers for term life reflects data from State Farm Insurance Cos. agents, who sell term life but not segregated funds.

Those surveyed at State Farm say term life makes up 36% of their book — the highest reported percentage for term life products. Clarica Life Insurance Co. reports the second-highest, at 29% of the average agent’s book. Both firms have captive sales forces.

Term life insurance is fairly easy for buyers to understand, says John Beaton of Beaton Insurance Services in White Rock, B.C. It does take some effort, however, to distinguish among the different wrinkles. Some renewable products “are absolutely hopeless, because the people who buy them don’t know what they’re buying.” He says the cost increases so dramatically over a short period of time that he often finds 10-year renewable policies are cheaper than five-year products. (Beaton runs an insurance education Web site at www.beaton-insurance.com.)

More complex seg funds provide death benefits and other solid guarantees against loss. The estate of a client who had $45,000 invested in seg funds receives that amount even if the investments have dropped in value. Beneficiaries named for each seg fund avoid legal, executor and probate fees that assets left through a will incur.

Fixed annuities, whole life and universal life are at the other end of the ratings and popularity scale. Among those surveyed, annuities contribute such a small percentage to commissioned earnings — only 3% on average — that they seem hardly worth including. Agents may well be avoiding annuities because interest rates are low, making payouts rather unattractive. Occasionally an insurance company will raise the payout on an annuity for the cash infusion.

Even if brokers might be avoiding complex products, bigger payouts don’t necessarily mean more people will sell a product. Agents make it clear that they don’t necessarily aim to push products that will generate big bucks.

As one British Columbia Equinox Financial Group advisor puts it: “Sometimes [the manufacturers] offer great commissions but the products are still lousy.”

A good example can be found in the numbers for universal life products, which make up only 15% of the average book, and rates the third-lowest in sales popularity —even though they offer the highest commissions available. One reason: universal life policies with flexible premiums, adjustable protection and policy elements that take into consideration earnings, pure cost of protection, company expenses, death benefits and more, are particularly notorious for being incomprehensible to the average broker, let alone the average client.

With so many variables, the product makes some agents apprehensive. Beaton says even with a fair understanding of how universal life works, there are so many different varieties it’s often easier to “leave the stuff alone.”

“I have reservations about our universal life,” agrees a Freedom 55 Financial Corp. agent in Ontario, when asked about the quality of products available. “Other than that, they’re bang-on.”

Ironically, premiums for errors and omissions insurance are another reason agents might drop certain products. Beaton says his errors and omissions insurance tripled in cost this year. “I’ve quit selling universal life,” he says. “The risk of being sued is too high.”

He alludes to lawsuits over policies that were supposed to feature vanishing premiums, for which dividends paid by these policies would carry the premiums. “Because interest rates went down sharply, this didn’t happen, and a lot of people were pretty mad about it. A lot of money changed hands from lawsuits,” he says. “I think quite a few brokers suffered financially for advice they’d given 10 years before.”

Whole life products, making up 10% of the average book, ranked one spot up the ladder from annuities in the product breakdown. Independent agents as a group, and Equinox, a national MGA, sold the least amount of whole life — 6% each.

Living benefits and mutual fund categories overall are middle-of-the-road products among those surveyed; the numbers vary considerably among companies. But mutual funds have become a significant part of the insurance advisor’s commission — except for State Farm agents who have only just begun to sell mutual funds.

Differences are found in what companies prefer their agents to sell. Some captive agents are especially susceptible to this.

“Of course, they only taught us how to sell whole life because that’s where they made their money,” says Beaton, recounting his earlier days in the industry. Individual preference also plays a role.

“When you first start out, you have to be a jack of all trades,” says one Freedom 55 agent in Ontario. “Eventually you learn what you excel at.” IE