We all have the right to choose to protect the lifestyle of the people that depend upon us. We can insure or leave it to luck.
A prudent person will insure; a small premium can call on the support of a much larger sum insured in the event that “luck” gives way to tragedy.
None of us like to think about the issue of an untimely death, but it does happen with all too often frequency. The following are actual death claims paid by one of Australia’s leading insurers in 2008:
- Nurse, 29, Myeloid Leukaemia, $166,200
- Beauty Therapist, 35, Breast cancer, $105,200
- Apprentice mechanic, 19, Car accident, $85,792
- Nurse manager, 44, Ovarian cancer, $1,375,448
- Chemical engineer, 38, Car accident, $1,024,000
- Office clerk, 23, Epilepsy, $200,000
How much cover is enough is the most common question that we are asked. The answer is directly linked to your lifestyle and the level of dependency of the people around you. These may be family or business colleagues, or sometimes even institutions that a person might financially support.
In a family situation the obvious need for cover arises from the need to clear debt and to provide for the ongoing care of family members and the education of children.
Whatever your position we can help you to determine what is needed and how it can be arranged. We can help!
Total & Permanent Disability Insurance (TPD)
This form of insurance is most often taken as an additional benefit to a Life Insurance policy. It can be proposed as a standalone policy too if desired. TPD is an insurance that pays a benefit if the insured person is totally and permanently disabled and unable to return to work.
Different policies carry differing definitions as to what constitutes a level of disability that makes a person “totally” disabled. Part of the skill of an adviser is to make sure that the definition and the needs of the insured are properly matched.
Some policies also pay a benefit on partial disability.
TPD is paid to the policy owner and is often regarded as a form of insurance that is a personal benefit rather than as a benefit for someone else’s care and maintenance.
Some claim payout examples from 2008 follow:
- Management consultant, 34, Cerebral palsy, $381,344
- IT manager, 42, Multiple sclerosis, $254,351
There are important considerations that need to be addressed when including some TPD policies, especially those that follow the “own occupation” style of definition, in a superannuation plan. We can and do advise clients on these complex matters.
Income Protection Insurance
For most people lifestyle depends very much on the ability to earn an income. People are able to insure up to 75% of their income against loss due to accident or illness. Usually the insurance activates after a preset waiting period, often set at 30, 60 or 90 days and then pays a monthly income benefit.
Once activated benefits are paid until the insured person returns to work, reaches a preset age or exceeds the agreed benefit payment period. Benefit payment periods may be for 2 or 5 years or until a selected age such as 65. One insurer offers a lump sum option as an alternative to monthly benefits, this is especially attractive in the situations where there is a real likelihood of long-term benefits being paid and the lump sum allows for more personal investment and income certainty and flexibility.
There are 2 main types of policies commonly offered, one that is based on an Agreed monthly benefit value and the other that Indemnifies the insured up to an contracted amount.
Premiums are normally tax-deductible for the payer and benefit proceeds are treated as taxable income to the recipient.
There are many additional benefits offered by insurers to try to differentiate their product from those of their competitors and our service tries to match a client’s circumstances to the best mix of ancillary benefits.
In recent times the use of Insurance Bonds has regained some of their former popularity. An Insurance Bond is a Life Insurance contract that pays a benefit at death or at some pre-determined maturity date or by prior withdrawal. They enjoy a number of key privileges under Tax law in that a Bond is taxed on its internal build up of value at the 30% rate, no matter what the rate of the owner. However the build-up of value is not regarded as income to the Bond owner.
This can be a valuable attribute in instances where a person’s access to some benefit is limited by income earned, or keen to save for a child’s education.
Insurance Bonds are also a convenient asset class to assist in the transfer of wealth to young children, as an education funding tool, and as a source of funds to enhance retirement incomes.
A special form of Insurance Bond is the Funeral Bond. This Bond has an additional advantage over a standard Insurance Bond in that it is exempt from the assets test for Centrelink benefits up to an annually indexed amount. A Funeral Bond is normally effected to set aside an amount to cover basic funeral costs. They can be assigned to a funeral director of your choice or held without making any commitment until the actual time of death.
We can advise and arrange both Insurance Bonds and Funeral Bonds to suit your needs.
“This website contains general advice only. Please contact me to determine whether the information is appropriate for your particular needs, financial situation or objectives prior to making an investment decision.”