Don’t leave it to chance
At Invest Blue we’re here to help you protect you and those you love.
It’s a cliché, but it’s true: people should expect the unexpected. It’s not something you want to think about all the time, but the reality is that throughout your life you’ll experience a number of unforeseen events that will affect your happiness and security. You don’t want to leave it to chance.
Insurance is designed to provide you with financial protection and assistance for events that can impact your financial position.
The latest statistics reveal that 95 per cent of Australian families do not have adequate levels of insurance. This figure is particularly alarming given that one in five families will be affected by the death of a parent or a serious accident or illness that will render a parent unable to work*.
Failure to cover these risks may result in an inability to maintain your desired lifestyle and to achieve your goals and objectives in the event of unforeseen occurrences.
The process of trying to get the right insurance in place can be overwhelming. You just need to turn on the TV or read a paper to see the barrage of advertisements promoting an array of insurance products. Invest Blue will help make the process as simple as possible by listening to your requirements and helping you identify how much you will need to protect you and those you love with a financial safety net in the event that the unexpected occurs.
Types of Personal Insurances
Invest Blue has access to a large range of insurers and can tailor your level of cover, benefit period, payment option and other plan options to suit your own circumstances. We help you understand the types of personal insurance that may be appropriate for your circumstances:
Life insurance
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Provides a lump sum in the event of the insured’s premature death.
It is intended to:
- Cover costs such as funeral expenses, legal fees associated with the implementation of your Will and Government charges (the government has first claim on your estate for unpaid income tax.
- Repay debts such as your home mortgage and personal loans.
- Provide a lump sum to replace your income. The lump-sum can be used to establish an income stream to support your spouse and/or children to enable them to continue their lifestyle and also to provide them with a degree of
financial security.
- Provide a lump sum to cater to the ongoing need to provide housekeeping and childminding for your family in the event of your death. The lump-sum can also be used to generate replacement income for your spouse in the event they take time off work.
- Provide a lump sum to educate children.
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Total and permanent disability insurance
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Provides a lump sum if you suffer a total and permanent disability and are unable to work again or unable to perform basic daily living activities.
Why do I need TPD?
- To cover your mortgage or pay other debts.
- To provide an income stream for you and your dependents or to supplement any income streams you may receive.
- To meet medical costs.
- To meet the costs of a modified lifestyle, e.g. nurse or carer and home and car modification.
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Trauma or crisis insurance
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Pays a lump sum if you suffer or contract a critical condition specified in the policy (eg heart attack, stroke, cancer).
Why do I need trauma insurance?
An example is best used to illustrate the effectiveness of having trauma insurance in place. Suppose you have a mild heart attack and are seriously ill but you are able to return to work after two months. It is possible that you will not be as productive as before, or be able to manage the stress associated with working to your previous levels again.
TPD will not payout immediately, as in many cases you are able to work and do not meet the definition of “totally and permanently disabled”, or have not met the lengthy waiting period. Also, depending on your income protection policy and the waiting period is chosen, this may also not begin to pay you an income for some time, and again you may not meet the policy payment conditions.
Trauma cover is required in these instances, as it pays out on the actual occurrence of the incident. This will ensure that you have the funds available to seek the medical treatment that you require, time off work and hopefully return to good health, without the pressure to earn an income right away. |
Income protection insurance
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Provides you with a monthly payment (usually up to 75% of your income) if you are temporarily unable to work due to disability.
This is defined by the Total and Disability definition of the policy. This definition varies depending on the policy. It can be based on such things as:
- Being unable to perform at least one important income-producing duty of your regular occupation;
- Not currently working in any gainful occupation; and
- Being under the care of a medical practitioner.
- In the event of disability and after your selected waiting period, the insurer will make regular payments to you, either for the term of the benefit period or until you are able to return to work.
- Income protection is not available to people who are unemployed.
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You may not know what life is going to throw at you but one thing you do want to know is that you are covered in case of adversity. Having the right insurances in place will provide you with that peace of mind.
Do you know the risks?
- More than half of the Australian population suffers from a Priority condition (asthma, cancer, cardiovascular health, diabetes, injury, mental health, arthritis and musculoskeletal conditions).
- Cardiovascular disease affects more than 3.7 million Australians and kills one Australian almost every 10 minutes.
- 1 in 2 men and 1 in 3 women in Australia will be diagnosed with cancer before the age of 85.
- In Australia, nearly 400 people sustain a spinal cord injury every year.
- Long-term disability and the inability to earn an income other than from government benefits could cost a middle-income family almost $1 million in lost income over 20 years.
How can I access cover?
You can gain access to cover either inside or outside of superannuation.
Holding insurance cover inside superannuation
Benefits
- Your superannuation fund may be eligible to receive a tax deduction for the insurance premiums paid.
- By placing your insurance cover within superannuation, the premiums are paid from your superannuation account and will not be a burden on your cash flow.
- Death benefits from your insurance cover held within superannuation will be tax-free if paid to your dependants.
- Super funds often offer discounted premium rates, making it cheaper to hold cover within super than outside.
- You can make pre-tax contributions to superannuation to cover your insurance premium, effectively making them tax-deductible.
- If eligible for the government’s co-contribution you can make post-tax contributions to cover your insurance premium, effectively earning co-contribution on your insurance premium.
Disadvantages
- You must become a member of the fund and must continue to meet the government rules about who can be a member, and the trustee will own the policy on your behalf.
- Death benefits arising from your insurance cover, through superannuation, may be liable for tax if paid to a non-dependant.
- Your premiums being paid from within your superannuation fund will reduce your superannuation balance at retirement.
- Total and permanent disablement benefits arising from your insurance cover, through superannuation, may be liable for lump-sum tax.
- Some policies are not as comprehensive as those held outside of super.
- Generally unable to access trauma cover.
Holding insurance cover outside superannuation
Benefits
- Generally faster payout than that of cover inside of super.
- Can insure a couple on one policy, saving policy fees and allowing you to manage one easy premium payment.
- Trauma cover is not offered inside superannuation.
- Premiums for your income protection cover are tax-deductible.
- You are the policy owner.
- You can own a policy on someone else’s life and vice versa.
- Greater control over what additional features you wish to pay for on your policy
Disadvantages
- Premiums are paid for with your after-tax income, which may burden your cash flow.
- Premiums may be more expensive than those offered within super.
How much cover do I need?
To determine the amount of cover you will need, your Financial Adviser will do a wealth protection analysis. Here is an example of an analysis.
Meet Sam & Kelly
Sam is 40 and a self-employed Accountant. Kelly is 38 and responsible for home duties. They have two children. Once the level of cover required has been determined, the next step is to consider any assets that could be disposed of (sold) to reduce the amount of cover required (ie. superannuation, investments, cars, boats etc).
If Sam paid the insurance premium outside super, he would need $2,238 in pre-tax income to cover the cost of the premium. The benefit of the “inside super” strategy means that Sam only needs $1,354 in pretax income to cover the cost of the premium. The difference is that Sam saves $884 on his premium cost ($2,238 outside super minus $1,354 inside super).
Purchasing insurance — inside or outside super
With the help of their Financial Adviser, it has been determined that Sam will require a $1,549,000 life insurance policy. Based on Sam’s personal details and the recommended sum insured, the annual premium for the required level of insurance cover is $1,354 p.a (paid monthly).3
Sam can personally own the cover at a cost of $1,354 p.a in the first year. In the table below we compare paying for this insurance premium outside super versus salary sacrificing into super to cover the premium:
General insurance – protecting your assets
Natural disasters are unpredictable. So is the threat of theft and burglary. And accidents happen.
General Insurance is vital for protecting the valuable possessions that you have worked so hard to establish. Having the right amount of coverage is just as important.
Invest Blue offers a general insurance service through our alliance with Amicus Insurance Service Pty Ltd.
What you need to know
1 Sources: AMP.NATSEM Income and Wealth Report Issue 4, Cancer Council Australia — www.cancer.org.au, AIHW–Australia’s Health 2008 — www.aihw.gov.au, Heart foundation — www.heartfoundation.org.au, Australian Bureau of Statistics — www.abs.gov.au.
2 Source MLC — based on Australian Life tables 2003-053 Based on $1,549,000 AMP Flexible Lifetime Protection premium for an insured male aged 41 next birthday, non-smoker.4 Assumes that no deduction for the premium for the ordinary policy applies and that the super fund can claim a full deduction for the premium. A tax credit is not available where premiums are funded with non-concessional contributions.All income tax rates are those applicable in 2009/10We assume that the insurance benefit will not be subject to income tax (i.e. it will be paid as a lump sum to a dependent fortax purposes)
This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.
