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Wealth Protection

Myths about Life Insurance

5 Common myths about life insurance

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Most of us like to think that insurance is a set and forget proposition that we pay for without too much consideration. However, no one can predict the future. Illness or injury can strike at any time with potentially devastating consequences. Australian Bureau of Statistics data shows that medical illnesses are the leading causes of deaths in Australia1. Topping the list are several types of cancer, Ischemic heart disease, stroke, Alzheimer’s disease and dementia. The health risks are clear yet many Australians are manifestly ill-prepared for these life events.

According to Rice Warner’s ‘Underinsurance in Australia’ report2, an average Australian couple around 40 years of age with children would require life insurance cover of approximately 10 times their annual earnings to repay debt and maintain their current living standards. However, very few Australians have anywhere close to this level of insurance cover.

It’s common for people to have an “it won’t happen to me” mentality, but unfortunately the facts speak for themselves. Taking some time to understand more about life insurance is worth its weight in gold as it could protect the financial stability of those you care for if you can no longer work or pass away.

Here we look at some common myths about life insurance.

Myth One: ‘I’m young and healthy. I don’t need life insurance.’

It’s easy to think you don’t need life insurance when you’re young, fit and healthy, but life has a funny way of ‘just happening,’ and if you are about to experience a significant life event such as getting married, having a baby, or buying your first home, you need to consider what could happen if the unexpected were to occur. For instance; if you were left without an income, how would you and your dependents cope financially?

It’s also important to consider what your health may be like in the future. Although you may be young and healthy now, unfortunately deteriorating health is a natural part of life. It’s a good idea to consider taking out life insurance early on in life, when you’re less likely to have any pre-existing medical conditions, as these could make you ineligible for life insurance cover or attract higher premiums when you’re older.

Myth Two: ‘I’m single and I don’t have any dependents. I don’t need life insurance.’

According to the Australian Institute of Family Studies3, the number of Australians living alone is as high as it has ever been with one in four people living in a single person household and that’s been the case for more than a decade now. While many of us are happy living alone, many of us also have financial responsibilities that aren’t linked to having a partner or a child.

Myth Three: ‘Life insurance is only worth it if you pass away.’

One main objective of life insurance is to provide financial security for your loved ones should you pass away. However, other personal insurances can also provide protection should you become critically ill, injured in an accident, or permanently disabled. Should this occur and you are no longer able to work, insurance can help you to pay for out-of-pocket expenses such as the cost of medical treatment and other household bills.

 

Myth Four: ‘My superannuation fund includes life insurance cover. I don’t need any more.’

Many super funds offer some form of life insurance for members but it’s often just a very basic level of cover and may not take into account your individual circumstances nor the amount of cover you would really need to maintain your standard of living if you could no longer work. This is where professional advice can help. Your financial adviser can tailor an insurance plan that’s designed specifically for you. This includes a review of any existing insurance policies you may have, an analysis of your financial obligations, and the level of financial support you want for your dependents; both now and into the future.

Myth Five: ‘I have private health cover. I don’t need life insurance.’

 There’s no denying that private health cover can be immensely beneficial if you require urgent or costly medical treatment. However, in many cases it won’t provide cover for ongoing post-operative costs such as any rehabilitation, or those financial obligations that continue while you’re unable to work, such as household bills and your mortgage repayments. Personal insurance can help by covering these additional expenses, and help protect your family’s financial situation should you be unable to return to work.

Reviewing your insurance arrangements with your financial adviser makes good sense. Even if it simply confirms that your existing insurance cover is fine. To find out more, please contact Revolution Financial Advisers.

 

1 Australian Bureau of Statistics, 2009, Causes of death, released May 2011

2 Rice Warner ‘Underinsurance in Australia’ report (July 2014)

3 Australian Family Trends No. 6. Australian Institute of Family Studies, March 2015.

buying insurance through your super? Contact Revolution Financial Advisers Toowoomba for advice.

Are you better off buying insurance through your super?

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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. However, 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.

2.  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.

3.  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 $100,000 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.

4.  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. 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.

2.  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).

3.  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.

4.  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. A 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 to discuss your insurance needs, please contact Revolution Financial Advisers to make an appointment.

Source: Capstone, AMP and Australian Federal Government.

Protecting yourself against risk

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

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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 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.

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 insurance is a one-size-fits all drain on your finances. That’s defintely 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 or trauma 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;
  • cover medical and rehabilitation expenses; and
  • enable your family to meet their ongoing living expenses and maintain their lifestyle.

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 education, 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. Revolution Financial Advisers can work with you to understand your wealth and lifestyle goals and put a plan in place to help you reach them.

Source: MLC.

Wealth protection

Life insurance – too good to be true?

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The recent surge of life insurance advertisements has attracted much interest and debate and as with everything in life, if something sounds too good to be true, it usually is.

Everywhere you look, there are offers of affordable and easy life insurance. Simply call this number / click here and you can be approved in minutes. No medicals, minimal paperwork and near instant approval. Anything wrong with this picture? You bet.

While people serious about their life insurance requirements seek qualified advice from Financial Advisers, it is easy to get caught up in the hype of a perceived deal and be caught out. Here’s why it pays to heed instincts when considering life insurance needs:

What is insured?

Life Insurance is a term familiar to many people; however you should be aware – like most things, all things are not equal. There can be large variations in what policies cover. Think about the term “car” – an instantly recognisable word; however, the differences between a Kia and Porsche are many and varied.

What is low cost?

Make sure you compare apples with apples. How can you decipher if a life insurance solution is cheap, if you are analysing completely different policies. You should exercise caution when evaluating premiums as you need to keep in mind that policies offering no medicals generally mean an increased premium cost in lieu of not assessing the health status of those being insured.

Also be wary of weekly or daily figures; this can be used as a distraction from the annual premium.

Is it personal?

A key component integral to life insurance is your age, family make-up including dependants, lifestyle, financial obligations, future aspirations etc – as this provides a snapshot of your situation and hence how much cover is required. We all have different circumstances, so you need to exercise caution when an advertisement offers a flat amount – i.e. $500,000, as this is certainly not based on your own situation.

The true value of advice

We strongly believe in doing things properly and that there is no substitute for professional advice. If you think about what is at stake, it is your family’s financial future and welfare; is that worth risking on a non-personalised life insurance solution?

Opting for a life insurance provider that is generically positioned through the media does not take into account your own circumstances and is potentially asking for trouble. It may mean strict and convoluted definitions (i.e. very specific coverage of events), inadequate levels of cover, broad exclusions and or high costs.

If anyone in your social circle is contemplating life insurance options or would like to review their current cover, it’s wise to speak to a qualified Financial Adviser who will undertake a detailed analysis of your situation and provide advice based on your needs. Contact Revolution Financial Advisers for more information.

Investment in insurance

Reviewing your insurance strategy is a solid investment

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We’re all interested in reviewing the current status of our wealth creation plan to see how our investments are performing. Unfortunately however, reviewing your insurance strategy is an often forgotten activity, as many of us adopt a ‘set and forget’ approach.

Do I still need my insurance?

If you’ve ever been involved in a car accident, had a flight cancelled, become seriously ill or had an injury that has kept you out of action for any length of time, you’ll know how worrying these incidents can be. If you have insurance, the cost of repairs, medical treatments, travel changes or recovery treatment can be softened.

Insurance provides the money you need when things go wrong, and we all know that sometimes, they do.

When should I review my cover?

You should review your insurance strategy whenever there is a change in your personal or business circumstances. Changes in any of the following areas should prompt you to review your cover as they can impact the type and amount of insurance cover you need:

  • income
  • assets
  • debt levels
  • dependants
  • relationship status (for example marriage, divorce or a new partner)
  • occupation or employment status (for example if you become self-employed or employee)
  • health (improvements or change in health of you or your partner)

What if nothing has really changed?

You should still review your insurance strategy every year, even if nothing in your personal or business circumstances has changed. Intense competition in the risk insurance marketplace means that insurance providers are always looking for the ‘edge’ with their products, particularly to ensure they remain in the highest rated products.

This can often result in additional benefits, better policy definitions and the introduction of new additional options which can be of value to you if you need to make a claim. While many insurers will automatically ‘pass back’ improvements in their policy definitions, this shouldn’t be assumed.

Where can I go for help?

It’s best to speak with us, your financial adviser, as we specialise in helping you understand the details of any policies you have, or that you are applying for.

Why do my premiums go up?

A question that is sometimes asked is ‘Do events such as the GFC impacted on my premiums? I have heard that due to the poor investment returns life insurance companies are facing, they have to pass this on to me in higher premiums.’

According to TAL, the answer is generally no. Most life insurance companies invest the premiums received into the short term money market and not into shares, in respect of backing their insurance liabilities. In broad terms, insurers are trying to match their investment strategy to suit the liabilities they are exposed to.

Whilst short-term interest rates have come down, as the Australian Government and those around the world have tried to stimulate economic activity through cheaper credit, this would only have a marginal impact on term premium rates. An exception to this is long term income protection, where falling interest rates have their biggest impact, due to the long term nature of the liability potentially stretching many years into the future.

Does inflation impact your premium rates? Yes, although only marginally so. As with any other business, rising costs faced by life insurers end up being passed on to customers. However, the component of your premium which is used for the running business expenses of the insurer is often only a fairly small component, and with inflation at approximately 2.5 per cent per annum), this is not a significant factor.

For further information, please contact Revolution Financial Advisers.