Tag Archives: Insurance

Protecting yourself against Risk: Counting the cost of a curve ball

By Robert Wright /September 18,2015/

Here’s a confronting question: What would you do if the main breadwinner in your household could no longer bring in an income? Do you have a Plan B? Most people don’t. That’s where insurance comes in.

Curve balls. They’re unexpected, often deceptive and it’s impossible to predict their trajectory. That’s why they’re so devastating – in sport and in life. There’s some interesting data now available about the kind of curve balls that can impact your life, your finances and your retirement.

The headline figure is this: one in three Australians could be disabled for more than three months before turning 65. If you combine this with another startling fact – that 60% of Australian families with dependents will run out of money if the main breadwinner can no longer bring in an income – you can see the problem. Curve balls are pretty common, but so few people are prepared for them.

And with mortgages to pay, school fees to fund and your family’s future to think about, it may be time to think about protecting the things you love from the unexpected.

What kind of Plan B do you need?

The last thing you need to worry about when you’re dealing with a curve ball is your finances – how you’ll keep the lights on and the kids fed.  That’s where insurance comes into its own. It’s a well-known saying that you only realise the value of insurance when you need it – and you don’t have it. But there’s also a common misconception that it is a one-size-fits all drain on your finances. That’s not the case.

There are different types of insurance that you can consider depending on your stage of life, industry and goals for the future. You may not need all of them.

Here are the four main types of insurance and the key personal protection needs they meet.

Income protection

Income protection can provide a monthly payment of up to 75% of your income if you’re temporarily unable to work due to illness or injury. This money could be used to meet your ongoing living expenses and financial commitments while you recover.

Critical illness cover

Critical illness cover can pay a lump sum if you suffer or contract a critical condition specified in the policy (eg cancer, a heart attack or a stroke). This money could be used to:

  • cover medical and other expenses such as rehabilitation, childcare and housekeeping; and
  • clear some or all of your debts.

Total and Permanent Disability

Total and Permanent Disability Insurance can provide a lump sum payment if you suffer a total and permanent disability and are unable to work again. This money could be used to:

  • clear your debts; and
  • cover medical and rehabilitation expenses.

Life insurance

Life insurance can provide a lump sum payment in the event of your death. This money could be used to:

  • clear your debts
  • enable your family to meet their ongoing living expenses and maintain their lifestyle
  • cover other expenses such as childcare and housekeeping; and
  • treat your beneficiaries equitably.

Seek advice

As we move through our lives, our insurance needs often change, so it makes sense to speak to a financial adviser to find the best option for you and your family. Your financial adviser can work with you to understand your wealth and lifestyle goals and put a plan in place to help you reach them.

Source: MLC.

Are you better off buying Insurance through your super?

By Robert Wright /July 03,2015/

When it comes to arranging insurance it’s important to decide what types of insurance are available to you and what you’ll need for your particular life circumstances. From here you’ll need to consider whether you should keep it inside your super fund or set it up separately.

What are the benefits of insurance through super?

  1. Get more for less

It can be cost effective to buy insurance through super. That doesn’t mean you won’t find cheaper cover outside your super fund. But it’s likely you’ll be better off because tax benefits mean you could end up paying less overall and group buying power – which normally comes with insurance through super – often gives you more for less.

  1. Boost cash flow

In super you can pay for your insurance using before-tax money rather than dipping into your take-home pay, which can also be a tax-effective way to pay your premiums. Or, you can simply have the premiums deducted from your existing account balance. Be sure to keep an eye on your super balance though – less super may affect your lifestyle in retirement.

  1. Access government help

You could make after-tax contributions to your super and use these to pay for your insurance. A payment into your super from your after-tax income is called a non-concessional contribution. This money is not taxed as you have already paid tax on it at your normal rate. There is a $180,000 limit per year, for the current year, on the amount of after-tax contributions you can make. If you do make after-tax contributions to your super, you may be eligible for a government co-contribution.

  1. Be covered more easily

You’ll usually be granted insurance cover automatically when you buy through super. Outside of super you may have to submit an application, undergo medical examinations and wait for approval.

What are some of the downsides?

  1. Tax on claims

Depending on your circumstances, you may pay tax on disability claim payments when your insurance is held through super. And certain beneficiaries may be subject to tax on death benefit claims they receive. A beneficiary is a person who receives all or part of the deceased estate. If a will exists, it usually sets out how the deceased estate and income should be dealt with.

  1. Limited beneficiaries

Payments (following death) can only be paid to superannuation dependants. If you have insurance outside of super there are generally no restrictions (unless your insurer specifies otherwise).

  1. Longer timing on payments

When it comes to payments for some policies, including life insurance, total and permanent disablement and temporary salary continuance, the money will normally be paid by the insurer to the super fund first. The trustees can then pass it to you or your beneficiaries in accordance with the fund’s rules and the Superannuation Industry Supervision Act – this means payments can take longer.

  1. Restricted types of cover

Cover provided through super can be more limited than a policy held outside super. For example, trauma cover is generally not available through super.

What now?

After you’ve considered the pros and cons of holding insurance inside super, you will need to determine the level of cover you need. Your financial adviser can help you to work out how much may be right for you. Regardless of how you choose to buy your cover, be sure you have the right type and amount for your needs.

If you would like further information, please contact your financial adviser.

Source: Capstone, AMP and Australian Federal Government.

Funeral Insurance: A Morbid Idea or a Smart Strategy?

By admin /April 24,2015/

It’s difficult to watch television these days without being bombarded with advertising from insurance companies, the latest trend offering low cost funeral insurance. It seems so easy, pick up the phone and within a matter of minutes you can be covered for the cost of your funeral. None of us want to pass on financial burdens to our loved ones when we die and the possibility that we can pre arrange to cover this cost ourselves is quite tempting. But is it really worth it?

The emotional pressure that features prominently in these commercials targeting younger seniors has attracted the attention of the Australian Securities and Investments Commission (ASIC).

In order to gain an insight in the public’s understanding of the options available to cover funeral expenses, ASIC’s Consumer Advisory Panel (CAP) conducted research1 to explore consumer awareness and understanding of three common products that consumers typically use to pay for future funeral costs. These are:

  1. Prepaid funeral plans – where consumers choose and pay in advance for their funeral.
  2. Funeral bonds – investment products that enable consumers to save for funeral expenses, with the funds withdrawn after death to pay for the funeral.
  3. Funeral insurance – where consumers pay monthly or fortnightly premiums in return for a fixed amount of cover to be paid upon their death.

ASIC’s research found that:

  • Many people do not have a sound understanding of the costs associated with a funeral.
  • People were not aware of the alternative ways to meet funeral costs, such as prepaying by installments or buying funeral bonds.
  • The term ‘funeral plan’ was often used to describe the three different funeral products in advertising and marketing material, which makes it difficult for consumers to differentiate between them.
  • Many people did not understand some of the key features of funeral insurance: increasing premiums, the total cost of funeral insurance in comparison to the real cost of a funeral, and the consequences of missing payments.

There are a number of risks associated with funeral insurance products that you need to be aware of. The initial premiums for funeral insurance may seem low to start with and are often touted as being less than a daily cup of coffee. However, many of the funeral insurance products on the market could see you paying much more than the actual cost of the funeral in the long run.

Funerals in Australia can cost anywhere from $4,000 to $15,000 depending on whether they are simple or elaborate. However according to a study conducted by Rice Warner2, you could end up paying over $80,000 for a $6,000 funeral if you took out the policy at age 60 and did not die until you reached 90. Furthermore, if you were to miss out on paying a premium payment at any stage – all your previous payments would be forfeited.

1ASIC Report 292: Paying for funerals: how consumers decide to meet the costs

2Rice Warner Actuaries, Pre-funding funerals, September 2010

While it can be a delicate subject, it is one that requires considerable thought. There are a number of ways to save for your future funeral expenses. To find out which option is the most appropriate for you, speak to your financial adviser.

Source: Capstone Financial Planning