The 10 percent rule is history! This rule prevented employees making additional tax deductible contributions into superannuation, even though their additional contributions were within the concessional (tax deductible) contributions cap.

Outline of new measures

From 1 July 2017, you may make personal deductible personal contributions into superannuation, provided that you do not exceed your concessional contribution cap. This means that any unused concessional contribution cap amounts can fund insurance arrangements in a tax effective way.

For example, consider the situation where your employer makes a $15,000 contribution into your super during the income year ended 30 June 2018. You now have the capacity to make an additional deductible personal contribution of $10,000 in the 2018 income year. If your insurance premium is $5,000 per annum, you can make a tax deductible personal contribution of $5,000 to a superannuation fund, and have the superannuation fund pay the requisite premium.

How does this benefit you?

(i) Substantial out of pocket cost reduction

Funding insurance through superannuation in this way can substantially reduce the cost of insurance.  Unfortunately, the cost of insurance outside superannuation is generally not deductible for tax purposes. If we structure an insurance arrangement in super funded by deductible personal contributions, we can achieve a substantially different out of pocket cost outcome for you. For example, if you earn $90,000 per annum in 2017/2018, you will have a marginal tax rate of 39 percent. In order to fund an annual insurance premium of $5,000, you must earn $8,197 before tax. Using the insurance in superannuation route, you can reduce the out of pocket cost of this insurance to $5,000 per annum. The out of pocket cost reduction is based on your marginal tax rates. The higher the marginal tax rate, the greater the reduction.

(ii) No erosion of retirement savings

A major criticism is that insurance in superannuation erodes retirement savings. This is certainly true when we are using superannuation balances to fund life insurance costs. However, in this instance there is no erosion of retirement savings. The $15,000 employer contribution made on your behalf is not eroded by this arrangement.

(iii) No contributions tax

Everyone gets confused over the imposition of the 15 per cent contributions tax. The good news is that the above arrangement does not carry a 15 per cent impost.

Your personal concessional contribution is included in the assessable income of the recipient superannuation fund, but there is an offsetting tax deduction within the superannuation fund for the premium paid on life cover. This means that the contributions tax cost is reduced to zero via this tax deduction. Your insurance arrangements in super therefore do not carry any costs in addition to the premium paid.

One word of warning

Beware the notice formalities

Personal contributions into superannuation are presumed to be non-deductible (“non-concessional”) contributions, unless you provide the superannuation fund trustee with a notice of intention to claim a tax deduction. If a notice is not provided, and other associated formalities are not completed within the prescribed time periods, no deduction may be claimed for the contribution in question. This means that you need to observe these provisions meticulously and diligently to ensure that you do not lose this valued tax deduction.

Way forward

The insurance in superannuation landscape has changed dramatically with effect from 1 July 2017.  Speak to your financial planner to ensure your life insurance arrangements give you the best possible outcomes.

For more information please speak with our financial advisors at Leenane Templeton Wealth Management.   Call (02) 4926 2300

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Most of us take for granted that we have to get our car serviced regularly. It’s not something we look forward to, but we know we have to do it – or it will let us down when we most need it.

A regular review of your financial plan is just as important – and for the same reason. Life changes so quickly we can forget important updates to our financial planning, particularly insurance as shown by this real life event.

Josh and Kate had their first child late last year. A close friend who knew Josh was quite casual about finance matters reminded him that their circumstances had now drastically changed. He suggested it would be a good idea to talk to his financial adviser about their insurance situation given their newfound responsibilities.

The adviser discovered that Josh and Kate had last updated their life insurance when they bought their first home three years previously. He emphasised that with the new baby, things had changed dramatically for the couple, and having insurance that only covered their mortgage would leave a shortfall should something happen to one of them.

When it was suggested they increase their cover from $250,000 (the mortgage) to $750,000, Josh was stunned! But then the adviser explained: should something happen to Josh, $400,000 would be drawn down over the long term to replace his income and allow Kate to look after their son. Otherwise she could use these funds to hire a nanny if she went back to work. Part of the remaining lump sum could be invested for their son's future education – this being one of their current savings goals that they would not want to change.

This one option removed considerable pressure from Josh and Kate in their new roles as parents.  Having appropriate life insurance in place gives you and your family options should the unthinkable occur.

Does your financial plan need reviewing?  Chat with Leenane Templeton today on 02 4926 2300

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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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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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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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Until you experience a serious injury or illness, it’s very easy to think that it’ll never happen to you.

However there are a lot of complications involved in suffering an injury or illness, or seeing someone close to you experience this misfortune.

Financial worries should be the last thing on your mind as you concentrate on improving your health, however you will eventually need to make some decisions regarding your finances and here are our tips for coping with injury and illness.

Choosing the right health cover

Some people swear by private health cover as it can provide you with more power of your choice of doctor, access to private hospitals and shorter waiting periods for elective surgery. If you can afford private cover and are considering taking it up, be careful to read the terms and conditions associated with your cover before agreeing to it and ensure you’re aware of all of the exclusions listed under the cover. As an example, if physiotherapy cover is something you think you may require, ensure it is not excluded from your chosen health cover option or choose an alternative healthcare fund. For more information on health insurance, please speak to your healthcare provider or financial planner.

Rebates

Many Australians paying premiums for private healthcare cover are eligible for a 30% rebate on the cost of their premiums from the Federal Government. You can claim your rebate by registering with your health fund when applying for cover, make a claim for a one off payment at a Medicare office near you or claim the rebate in your annual tax return.

The Government also offers a rebate for some out of pocket medical expenses, known as the Medical expenses tax offset. You can claim this rebate on your own expenses or the medical expenses you’ve incurred on behalf of your spouse, your children and your invalid relatives.

For more information on these rebates, speak with your financial planner, visit the ATO website or phone the Government’s Aged and Community Care InfoLine on 1800 500 853.

Insurance cover

Life insurance can provide you with a degree of security in times of injury and illness and many insurers provide life insurance to people aged up to 75 years. Not only will life insurance give you peace of mind over the control of your assets, but many life insurance policies will provide you with some of your life insurance entitlement if:

• you are injured
• you are diagnosed as terminally ill
• you suffer a trauma such as a stroke, heart attack or are diagnosed with a degenerative disorder such as Parkinson’s disease or Multiple Sclerosis.

(Please note, you will need to be covered by a life insurance policy that offers ‘trauma insurance’ to receive this benefit).

It is important that when you make any application for insurance that your responses to the insurer’s questions are very clear and truthful. Expanding on your answers and clarifying your statements will improve your chances of receiving an insurance payout should you ever need to make an insurance claim.

Making an insurance claim

You may need to fill in a number of forms to make an insurance claim and provide a number of documents to your insurer.

Don’t hesitate to contact your insurer if you have any queries while you’re completing these forms – providing the correct information in your initial application is likely to save you and your insurer time while they process your application. If you’re facing financial hardship, mention this in your initial claim as your insurer will then know to treat your claim as a priority. Above all, request the help of your financial adviser when making a claim. They have experience in claims management and in dealing with
insurance companies.

Once they’ve received your insurance claim, insurers are required to decide on your claim and notify you of the result of your claim within 10 days of receiving all of the material that they require from you. If your claim is denied, you must be given a reason for the denial and either referred to another insurer or the industry ombudsman.

Accessing your assets

When medical costs start weighing you down, you may want to consider accessing some of the value of your assets. Consider downsizing to a smaller home, drawing on any investments you have and accessing any superannuation or annuity and allocated pension funds available to you.

Once again, seek the assistance of your financial planner for information on the best approach for you. They will be able to advise you on the most appropriate way for you to proceed.

Organise your affairs

There is no time like the present to conduct a few unpleasant, but necessary, tasks such as creating or updating your will and discussing your wishes for your future with your family and friends. A little time committed to these tasks now will be greatly appreciated by your family and friends should you become very seriously ill or injured.

Source: Zurich Financial Services Australia, March 2011

For more information about your financial risk situation speak with Leenane Templeton about our Financially Well Organised meetings which help to ensure you have all of your affairs in order.  Call 02 4926 2300 or visit our website for further details about Newcastle accountants Leenane Templeton and for information for self managed super funds.

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What would you do if you became critically ill and could not work?

Life insurance cover gives you and your family the protection you need from any unforeseen event that ultimately results in your death. But what would happen if you become critically ill and could no longer work and provide a regular income to cover your lifestyle and expenses?

Many Australians have adequate insurance in place for material possessions such as motor cars, and their home and its contents, but many still steer away from insuring the most precious thing in the world – themselves and their family.

We can be overly optimistic about our health and have the ‘she’ll be right’ attitude that falling seriously ill won’t happen to us. The reality is illness does not discriminate and it can happen at any time and to any one. In fact, it is a risk not to have adequate protection in place.

Many of us consider our material assets to be our greatest assets, but the reality is that it would be difficult to hold on to these if we didn't have our health and a consistent reliable income. The facts are:

• around 3.67 million Australians are affected yearly by heart, stroke and vascular diseases
• 50,000 Australians have a heart attack every year and a stroke occurs every 12 minutes
• one in three men and one in four women will be diagnosed with a malignant cancer before age 75
• the average age of diagnosis of the most common chronic nervous system condition, Multiple Sclerosis is 30 (87% are of working age)
• just under 50% of Australians with arthritis-associated disability are aged 15 to 54

A sobering health check
 

With critical illness insurance, you can insure yourself against a range of illnesses – such as cancer or a stroke. The amount of cover you need depends on a range of factors such as age, income and debt levels. It can pay a lump sum amount or a fixed monthly amount if a specified critical illness is suffered. Its aim is to protect your lifestyle and assets in the event you suffer a critical illness and are unable to earn a regular income. This can help you remove large debts such as your mortgage and unforseen medical expenses that ordinary health insurance doesn’t cover.

Seek critical illness insurance advice
 

If you recognise that you are underinsured or are not covered at all, don’t wait until it’s too late. Make a commitment to you and your family and act today by talking to one of our financial advisors. We can help you find the right types of cover for your needs and set your cover at the most appropriate level.

1. Heart Foundation, Australian Facts 2004: Heart, Strokes and Vascular diseases 2004.
2. Cancer Council: (www.cancer.org.au), Cancer in Australia: an overview, 2008 Australian Institute of Health and Welfare (published December 2008).
3. MS Australia (2005) MS The Mystery Disease. Sydney: MS Australia 2009 Media Kit.
4. Australia’s Health 2008, Australian Institute of Health and Welfare, June 2008.

Source: Aviva Australia, 2010. 

For further information about ensuring your finances are in place speak with your Newcastle Financial Advisor

Disclaimer

The information contained in this document is based on information believed to be accurate and reliable at the time of publication.  Any illustrations of past performance do not imply similar performance in the future.

To the extent permissible by law, neither we nor any of our related entities, employees, or directors gives any representation or warranty as to the reliability, accuracy or completeness of the information,  or accepts any responsibility for any person acting, or refraining from acting, on the basis of information contained in this communication.

This information is of a general nature only.  It is not intended as personal advice or as investment recommendation, and does not take into account the particular investment objectives, financial situation and needs of a particular investor.  Before making an investment decision you should read the product disclosure statement of any financial product referred to in this newsletter and speak with your financial planner to assess whether the advice is appropriate to your particular investment objectives. financial situation and needs.

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