One in three consumers are getting dodgy advice when it comes to life insurance, a report by the corporate regulator reveals.

The Australian Securities and Investments Commission review of more than 200 financial advice firms found while 63 per cent were compliant, 37 per cent of the advice consumers received did not comply with financial advice laws.

“This is an unacceptable level of failure, and the life insurance industry is now on notice to lift standards and professionalism,” ASIC Deputy Chairman Peter Kell said.

• Why life insurance should be on your radar
• How to find financial advice you can trust

“Both insurers and advice firms need to work on delivering a consistently better service for consumers.”

ASIC has flagged ongoing investigations into companies where inappropriate advice was provided.

The review found that advice receiving high upfront commissions strongly correlated with non-compliant advice.

“The industry as a whole needs to consider how remuneration and compliance practices can better support good quality outcomes for consumers,” Mr Kell said.

The Future of Financial Advice reforms allow commissions to be paid on life insurance, despite banning them on other financial products.

The industry argument is that taking away upfront commissions would make the nation’s under-insurance problem worse.

The report also flagged the issue of affordability, with clients recommended insurance they could not afford.

It also raised concerns over high levels of lapsed insurance.

CHOICE head of media Tom Godfrey said the report once again highlights why Australia needs to maintain strong financial advice protections.

“Clearly you are more likely to get bad advice from advisers who received an up-front commissions – which ASIC found can be up to 125 per cent of your first year’s premium.”

Mr Godfrey said the review offered more evidence that conflicts of interest in the advice industry are the root cause of bad consumer outcomes.

“The advice industry continues to fail consumers because it persists in taking unfair and biased commissions.”

• Read more on how to know what kind of life insurance is right for you here.

Key warning signs

Questions: If an adviser is not asking you detailed questions you should be concerned. ASIC says all advisers should conduct “an appropriate needs analysis” of their clients so they can give scaled advice.

Using your super: Life insurance advice recommending you pay insurance premiums using a significant percentage of your superannuation guarantee contribution could be a warning sign, say ASIC.

Poor record keeping: Make sure your adviser keeps immaculate records. Poor record keeping is a sign to ASIC that an adviser may be non-compliant.

Warnings: Does the advice sound too good to be true? Be wary. All financial advice must come with clear and specific explanations to you about the reasons for and implications of a particular policy or strategy. Make sure you understand the pros and cons, and ask for full disclosure of fees and commission if its recommended you switch to a new product.

Attention to detail: Depending on policy, you’ll need to tick all the boxes, this means things like making sure there’s a beneficiary listed on your policy. You’ll need advice that covers the nitty gritty as well as the big picture.