Recent changes to superannuation legislation present exciting opportunities when it comes to ways of funding life insurance. With choice, however, comes complexity and the challenge is to isolate the benefits offered by the various funding alternatives.

Behind the scenes

The story behind widening the choice for consumers involves two key factors.

Firstly, recent changes to the superannuation regulations introduced a new obligation for super fund trustees to respond to requests from members to roll over funds to another super fund within specific timeframes. This measure was introduced by the Government to give consumers freedom of choice as to the location and spread of their superannuation money.

The second factor is the use of contributions tax rebates. Superannuation funds generally receive a tax deduction for life insurance premiums.  Many super funds are now passing that benefit on to the contributing member, allowing the member to reduce the cost of their life insurance cover.

The combination of these two features may provide you with the opportunity to reduce your costs. If your life insurance needs are not being met by your existing superannuation fund, you can access more suitable life insurance cover via another super fund. It is now possible to fund the life insurance by a rollover from your existing fund. The amount rolled over may also be reduced by a 15 per cent tax rebate, delivering a substantial reduction in the cost of your new life insurance arrangements.

But there are considerations…

Before you commit to going down this new path, you should ensure that this option is best suited to your circumstances. You should consider the following three points:

• Erosion of retirement savings. There is no free lunch. The use of accumulated balances in your existing superannuation fund to finance your life insurance needs will reduce retirement savings.
• You may be able to fund the contributions to your life insurance superannuation fund by contributions from your employer under a salary sacrifice arrangement. In this case, as you receive the tax benefit via the salary sacrifice arrangement, you will not be eligible to receive a contributions tax rebate.

• If you are self-employed, the funding of life insurance needs via a tax deductible personal contribution into super fund may be more efficient. In this case, as you would receive the benefit of a tax deduction for your superannuation contributions, you would not be eligible for the contributions tax rebate.

• If you have a self-managed superannuation fund (SMSF), the optimum insurance solution may be to continue the traditional financing structure. Under this structure, the trustee of the SMSF owns the life insurance policy, and can access the benefit of any tax deduction associated with the premium. Introducing the complexity of a rollover arrangement may not deliver any additional benefit.

The way forward

The broadening of insurance payment options now gives you a substantial opportunity to ensure that your life insurance arrangements are completed on the most cost effective basis.

If you are eligible for this rebate, and a rollover provides a definitive advantage, all that’s left is to make sure you are comfortable dipping into retirement savings to pay for peace of mind today.

For more information about insurance through super, speak to your Leenane Templeton financial planner on 02 4926 2300

Source: TAL

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Heart disease and stroke continue to be the two most common causes of death⁵ in Australia for people over the age of 45 and accounted for over 30,000 Australian fatalities in 2012. Incredibly, thousands of Australians are underinsured or have no insurance in place to cover the expenses should they suffer a debilitating illness.

According to the Cost of Cancer in NSW ⁶report, the total expected lifetime economic cost of cancer – taking into account both the financial cost and the burden of disease (lost productivity, burden on healthcare system) – is almost $1m per person. Certainly for an individual being treated for cancer, out of pocket costs in excess of $100,000 are not uncommon. Many financial planners use a rule of thumb for calculating an appropriate sum insured which at minimum should allow for the removal of debt and the provision of one year’s income, but this is merely a starting point.

These initial figures should be considered along with the financial cost to the individual and family, and importantly the ‘true cost’ of the disease. 

You can rely on trauma insurance

Trauma insurance can cover between 10 to 50 medical events and will pay in the event you suffer a defined health trauma, regardless of your work status. It pays a lump sum to help cope and recover from serious health conditions such as cancer, strokes and heart attacks. Some insurers also offer partial payments for less serious conditions.

Medical advances have meant that our chances of surviving traumatic events are much better than in the past. However, the cost of treatment can sometimes be beyond your normal means. Without trauma cover, you may need to dip into your children’s education fund or your retirement savings; or you might even have to increase your mortgage to pay for expensive treatment.

The difference to income protection

Importantly, a trauma payment is not dependent on you being unfit to work (unlike income protection, where you need a doctor to certify your ongoing health). The diagnosis of a traumatic condition might mean that you physically could go to work, but would prefer to spend time with your family and reduce any work-related stress while you recover and consider how your future will be affected.

To make sure you don’t increase the statistics, check your policy documents to see which level of cover you hold, and speak to your financial planner if you are unsure. They can help you determine what cover you already have, what changes or additions may be appropriate and how to make them.

Speak to your Leenane Templeton Financial Planner to discuss your insurance options. Contact us at 02 4926 2300 or email success@leenanetempleton.com.au.

Source: Zurich

⁵ Leading Causes of Death, Australian Institute of Health and Welfare, www.aihw.gov.au/deaths/leading-causes-of-death.

⁶ Cost of Cancer in NSW, Access Economics Pty Limited for The Cancer Council NSW, 2007.

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There is no doubt that the very thought of claiming on your own insurance policy is depressing, but the research proves that you (and even me) may be unable to work for an extended period during your working life due to sickness or an accident. The problem is that nobody has any idea of when that might happen. Please try to fight the urge to stop reading now and ‘worry about it later’ because there is an important message here. 

It’s a confronting topic that makes us think about our own mortality. However, as a financial adviser I have helped many clients through the process. The worst can happen to anybody. If it does happen to you, you want to make sure that:

i) you took due care (supported by advice and help from someone in the know) when preparing your initial application, and
ii) that you actually have the cover in place. The first question after, ”are you ok?” is often, ”do you have insurance?” If you think your answer would be, ”I think so” or  ”no”, please stop now and consider how your family would cope in this situation, or more to the point, how would you cope financially if something happened to a beloved family member?

Before you get to that point, where do you start if you don’t have cover? 

Firstly, at Leenane Templeton you can talk with Roger Ward a licensed financial adviser who specialises in Personal Risk Insurance. The application process is so important to ensure a stress-free outcome in the event of a claim. It has to be done right; and the conditions and definitions (the boring stuff) must be spot on. Don’t be satisfied with approval of cover that required very little in the way of medicals or blood tests. You may think you have cover but it’s a nightmare to be told at claim time your application is rejected because you ‘broke the rules’ since you forgot (often genuinely) to tell the insurer something small but now seemingly crucial. 

A professional adviser like Roger will ensure you have insurability from the very moment the cover is granted. Yes, you will have to pay for that advice, but believe me it’s invaluable. As I say, the last thing anyone wants when they have suffered a serious injury or have been diagnosed with a life-threatening illness is a delay.  Or worse still, have any doubt the claim will be paid.

This is where the role of an adviser throughout is so important. Your adviser will know someone ‘higher up’ and ‘in-house’ who can back them up through the process. That means, it’s not only your adviser who is onto the insurance company but their contacts, who are often part of a large Head Office which the insurer does not want to get offside. This alone is a huge factor over buying insurance ‘online’, because who will be there to back you up?

Roger is ready to answer any questions about insurance you may have. 
Call (02) 4926 2300 or email us. 

Please don’t put the insurance talk off any longer – and this is the pulling on the heart strings part – do it for your kids and family if for nothing else. 

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When most people think about financial planning they tend to focus on the wealth creation side of things, but often forget about the wealth protection. Building a financial plan without adequate insurance is like building a house on flimsy foundations. 

Comprehensive insurance cover can be a significant expense; however these costs can be made more affordable by taking advantage of the tax deductions that apply to specific types of insurance, and to some methods of implementing insurance. 

Income protection

Due to the high frequency of claims, premiums for income protection insurance can be quite high. However, they are tax-deductible, so the cost is discounted at the same rate as the policy holder’s marginal tax rate. For example, someone on a marginal tax rate of 39% (including 2% Medicare levy), paying a premium of $1,000 would have an out of pocket cost of just $610, after the tax deduction is claimed. 

It needs to be remembered, however, that any benefits paid under an income protection policy are treated as assessable income, and therefore subject to tax. 

Life insurance

While the premiums for life insurance are not normally tax-deductible to individuals, there is a simple way to gain a tax benefit. Superannuation funds can claim a tax deduction for the life insurance premiums they pay. So by taking out life insurance via a superannuation fund, the end result is the same as if the premium was deductible to the person taking the insurance. 

Using superannuation to provide life insurance has another potential benefit. As premiums are paid by the fund, it reduces the pressure on household cash flow. This may reduce the ultimate superannuation payout, but if the savings made outside of superannuation are used wisely, the overall financial position should be improved. 

The proceeds of life insurance are not generally taxable. However, a death benefit paid from a super fund to a non-dependant may be subject to some tax. 

Total and permanent disability insurance (TPD)

TPD insurance is usually attached to life insurance. From a tax perspective it’s treated in a similar way, so implementing it via superannuation is usually the most tax-effective way to do it. 

Trauma insurance

Trauma insurance pays a lump sum if the policy holder suffers a defined medical condition or injury. It cannot be implemented through superannuation. Premiums are not tax-deductible, and benefit payments are not subject to tax. 

As with investing, the main focus on insurance shouldn’t just be on saving tax. It is a protection tool. Always talk to a qualified adviser to ensure you get the appropriate level of cover, and the most tax effective way to implement it. 

Our risk management and accounting teams are ready to help. 
Call (02) 4926 2300 or email us. 

If you have any questions in relation to the tax advantages of insurance please contact our team at Leenane Templeton today!

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Your most important asset is your capacity to work and generate an income. If you are unable to work due to sickness or injury, how would you continue to meet your financial obligations and continue your present lifestyle?

Being unable to work due to sickness or injury is a very real and frightening circumstance. Six in ten Australians will be disabled for more than one month during their working life and one in four will be disabled for more than three months. Despite not being able to earn an income, your financial commitments will continue despite the fact you are not working. Risk needs to be managed to ensure that you can continue to support yourself and your family during the time that you are incapacitated. Personal risk insurance is one way of managing this risk – income protection provides a monthly income stream to compensate for your lost income when you are unable to work due to sickness or injury.

Income protection premiums are generally tax deductible as the premiums represent the cost of protecting your income stream. The benefit of the tax deduction is tied directly to your taxable income and can represent a substantial reduction in premium in your after tax cost.

As you approach the end of the financial year, reviewing your current income protection needs may have an added tax incentive. After discussions with your planner, you may be able to pay for the annual cost of cover in this tax year and secure a full tax deduction for the cost of cover.

Income protection premiums may be funded using your accumulated superannuation balance – meaning you do not have to fund the cost of premiums from your earnings or savings.

Income protection insurance inside superannuation offers a cash flow advantage by using the accumulated balance in your superannuation account. This strategy does not require you to pay any additional premium from your earnings or savings. Your financial planner will arrange the payment of the income protection premiums from any superannuation account whether directly in your current fund, or via a rollover to the income protection policy.

It is important to note that income protection inside superannuation is not always appropriate and needs careful consideration from your planner. Using your superannuation account balance to fund an income protection insurance premium will erode your retirement savings – the impact of such needs to be discussed to ensure you can still meet your retirement goals.

Your financial planner will talk to you about the limitations that exist when funding an income protection premium through superannuation. There may be some benefits that are important to you that cannot be offered through superannuation. In this case, you may be able to split the cost of your income protection premium using superannuation and after tax earnings. In this scenario, your superannuation account can fund up to 95 per cent of the total premium, ensuring that there are still significant cash flow benefits in this model.

Few consumers have the ability to navigate through the opaque and complex taxation and regulatory rules relating to income protection. However, it is vitally important for all income earners to consider what happens if they are incapacitated, and how to manage this risk. A discussion with your financial planner will help you to formulate a strategy that is both appropriate and cost effective.

Source: TAL.

Call (02) 4926 2300 or email us.

To discuss protecting your income and types of insurance available to you, please do not hesitate to contact the specialised risk management team at Leenane Templeton.

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You’ve saved hard to build your retirement nest egg. You should be able to spend the money on a well-earned relaxing lifestyle. But all this could be put at risk if your adult children don’t have their own financial affairs well managed, particularly adequate insurance protection. 

It’s human nature to assume that bad things only happen to others. Unfortunately this approach means that many people are unprepared financially for their future if sickness, accident or injury strikes. This often results in other family members having to bear the costs of supporting them.

For those close to or in retirement who are placed in this position, the financial impact can be devastating. 

Could this happen to you?

Let’s consider the example of Gary and Roslyn, both 61, who have one child, a 30-year-old daughter Janet. Gary and Roslyn are retired with an investment portfolio valued at $700,000, paying them an annual income of around $48,000. They also own their home, valued at $650,000.

Gary and Roslyn were enjoying trips away and spending time with their extended family members overseas until their lives dramatically changed when Janet was badly injured in a car accident. Janet was in hospital for almost three months, requiring another nine months of rehabilitation before she was able to return to work. 

Janet’s sick leave ran out after the first fortnight, and as she had no insurance cover in place, she had no income to pay the mortgage on her apartment ($2,500 a month) or other essential costs, including her mounting medical expenses.

As they didn’t want Janet to have to sell her apartment, Gary and Roslyn needed to draw on investment capital from their portfolio to pay Janet’s mortgage and meet her expenses for the year she was off work. This ultimately reduced Gary and Roslyn’s investment portfolio by almost $70,000 (or 10%). 

While Janet fortunately made a full recovery, the cost to Gary and Roslyn of supporting their daughter in her time of need meant a dramatic change in their long-term retirement prospects; ultimately their income was reduced by $7,000 per year for the rest of their lives (a 15% reduction), plus their travel plans were significantly affected. 

What can you do?

Believing that unfortunate events only happen to other people isn’t a responsible solution and is a terrible way to jeopardise your retirement. As part of looking after your own financial future, make sure that others who could affect your plans, such as family members, have also taken the right steps for their own lives. 

Talk openly to your adult children about their insurance cover and if they are putting themselves or you at risk, recommend they talk to a licensed adviser.

Call (02) 4926 2300 or email us to spreak with one of our specialist risk management advisors about protecting your entire family 

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Although a health crisis can occur at any time of life, the risks obviously increase as we age which is why insurance is important at any age. Unfortunately, due to the increased risk of illness or injury the cost of insurance for those over 50 can be high. As a result, people in this age group often drop their insurance cover altogether just when their need is at its greatest.

If age 50 is looming, or you’ve already passed your half century, it’s even more important to protect both your income-earning ability and the financial security of your dependents. This can be achieved with appropriate insurance.

Here are some solutions to consider:

• Life and disability insurance can be arranged through most superannuation funds. Premiums are paid from the superannuation thereby reducing strain on the household budget.
• Review your level of insurance. As your investments and superannuation increase, or your debts and expenses decrease you may be able to reduce your cover and still provide for your beneficiaries.
• For income protection insurance, if you have savings in place, annual leave or sick leave entitlements, you may consider increasing the waiting period before a claim. Depending on circumstances, this may allow you to retain an important benefit at a more affordable price. More-over, while Income Protection cover targets insuring 75% of your Gross Wages, your annual cashflow needs to cover living costs may be lower than this. You may consider reducing the monthly benefit in line with your cashflow needs thereby reducing the cost of cover.

If you’re not sure what to do, talk to one of our licensed financial adviser here at Leenane Templeton before you make any adjustments to your insurance cover. It may not cost you as much as you first thought.

Call (02) 4926 2300 or email us.

To discuss how insurance is important at any age please call our specialised financial and risk management advisors to discuss your circumstances further.

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Most life insurance policies will allow you to buy extra cover for just this event. It’s called a Total and Permanent Disablement (TPD) benefit. It’s usually offered to working people aged between 16 and 65, with policies also available for homemakers. Cover can be arranged privately or through a superannuation fund or a mixture of both. The benefit is paid as a lump sum.

Like all insurance policies, it’s important to understand when the benefit will be payable. This is particularly important with TPD cover where the insurer will generally pay out in the event that it is unlikely you will ever be able to work again. But what does that mean?

To qualify for payment you will generally need to have been off work for at least six months due to the disability. You will be required to lodge medical reports from your own doctors and be examined by the insurer’s medical specialists. Depending on the wording of the policy, the insurer will decide if you can work again in:

• Your Own occupation

• Your Own or a similar occupation

• Any occupation, or

• Conduct Home Duties.

Some policies provide other definitions of disablement such as; loss of limbs, blindness or inability to perform the activities of daily living. Activities of Daily Living (ADL) is often seen in automatic accepted cover, such as cover offered through your employer’s group Superannuation policy. This definition can be difficult to meet requiring a far greater severity of Total and Permanent Disability as compared to the conditions that would satisfy an Own, Any or Home Duties definition.

Since 1 July 2013 any lump sum payments paid from a TPD policy held within a super fund cannot be made to the beneficiary unless and until that person satisfies a condition of release as defined in the legislation. This all but rules out holding “own occupation” TPD policies within super. As a result of this legislative change, there are differences between the Any Occupation definition of cover held through Superannuation as compared to the Any Occupation definition on cover held outside of Superannuation.

There is a natural tendency to look for the lowest premium in selecting insurance. With TPD cover, being sure the policy definitions are appropriate for your own circumstances is absolutely vital. After all, there is no point having a policy that doesn’t pay out when you need it.
 

If you wish to discuss your TPD policy please contact our expert risk insurance staff here at Leenane Templeton.

Call (02) 4926 2300 or email us.

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Mike’s case

Mike and Terri are both aged 38 and have three children under six. Mike earns $100,000 a year and Terri and the children rely on his income. They have a $300,000 mortgage and know they are taking a big risk not having life insurance. However, they rely on every dollar Mike earns and don’t think they can afford the premiums.

They discuss their circumstances and needs with a financial adviser and agree that ideally they need about $1.6 million dollars of cover. This would include funds for Mike’s medical and funeral expenses if he got very ill and died, paying off the mortgage and providing an income for Terri and the children. Mike is charged a premium of about $3,500 in the first year.

Their adviser shows them how they can afford the premiums by arranging the cover in superannuation and salary sacrificing the premiums. The table shows their expenses are $40,000 a year and have a very small surplus at present (insufficient to meet the insurance premium). Mike would need to salary sacrifice $4,117 (to allow for the 15% tax in superannuation) but this would reduce the amount of income tax he pays and maintains some of their surplus as well as paying for the necessary life cover.

The need for review

This case is based on Mike and Terri’s circumstances today. What if they had another child or received an inheritance? Next year the premiums will be higher because Mike is a year older – will they still need the same level of cover? Mike’s employer will be paying into superannuation for him and as his account grows he may need less cover.

Some types of insurance are treated differently when held in a super fund and there is a range of issues to consider, so it’s important to seek professional guidance from your financial adviser first.

Disclaimer: The Case study in no way suggests that a single income family earning $100,000 with a $300,000 mortgage requires $1.6M of insurance and should your circumstances be similar an individual review of your needs is still required.

Sources: www.ato.gov.au

Disclaimer

If you would like to learn more about how you can cut the cost of insurance please contact our expert Risk Management Advisors.
Call (02) 4926 2300 or email us.

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These bonds are available from friendly societies, life insurance companies and some funeral directors. A funeral bond is like a managed fund except it can only be paid out upon the death of the owner. You cannot access the money earlier. The upside is that like other managed investments, it earns interest until you need it.
 

As investments, funeral bonds are assessed under the Centrelink assets test, which means your share of the value (plus interest) is included in your assessable assets and is deemed to be earning income under the deeming rules.
 

To be exempt from the assets test:
• the bond must not exceed the Funeral Bond Allowable Limit (FBAL), which is currently $11,750 indexed annually on 1 July, and
• there are no prepaid funeral expense arrangements in place.
 

Some advantages of a funeral bond include:
• The proceeds are paid out tax-free.
• Your family can choose any funeral director.
• You can invest in two bonds which still qualify for exemption from the Centrelink assets test provided they fall below the FBAL.
• Some bonds have extra benefits such as providing for transporting your body home if you die overseas or interstate.
 

It’s wise to check the conditions of each funeral bond. For instance, some bonds will pay the full balance on death and others will only pay the actual amount required for the funeral, which means that any excess is retained.
 

As with any financial product, consider all your financial circumstances and always seek professional guidance before you commit yourself.
 

Our team of advisors are at hand to help with any questions or queries you may have about funeral insurance and funeral bonds.
Call (02) 4926 2300 or email us.
 

Disclaimer
 

Sources:  
Centrelink  www.humanservices.gov.au Funeral bonds and prepaid funerals
 

Call our risk management specialists today!
 

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