An often forgotten aspect of insurance

An often forgotten aspect of insurance

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 $590, 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, a similar result can be gained 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 super are used wisely, the overall financial position should be improved. The proceeds of life insurance are generally not 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. However, TPD policies held in super must have a stricter definition of what constitutes ‘total and permanent disability’ than similar policies held outside of super. 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, but 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.   The information provided in this article is general in nature only and does not constitute personal financial advice.

Unlocking the mysteries of your super statement

Unlocking the mysteries of your super statement

Superannuation statements. Boring, right? But if, like many people, you toss your annual super statement in a drawer or hit delete, you could be depriving yourself of many thousands of dollars just when you need it. So, it’s worth the small effort to take a closer look at your superannuation statement. A quick check of your statement may reveal some of the common problems that occur with super; and the sooner these are fixed the quicker your savings can increase. What to look for The layouts of statements vary between super funds, but there is standard information that must be provided. Some items may appear in summary form, with a detailed breakdown shown elsewhere. Here are the key things to look for: Contributions or funds in This will cover employer and personal contributions, government contributions and rebates, plus any rollovers. If you’re an employee earning more than $450 per month, your employer should be paying 10% of your ordinary time earnings to your super fund. Payments can be made either quarterly or monthly. Funds out Most commonly this comprises administration and investment management fees, and any insurance premiums. Excessive fees can place a real drag on the performance of your savings, so check that they are competitive with other funds. Investment earnings This covers interest and share dividends, along with any capital growth in the value of your investments. Be aware that depending on your specific investment mix and the performance of markets, this figure may sometimes be negative. Insurance cover Your super fund may provide death and/or disability insurance. If so, check that it is appropriate and adequate for your needs. Maybe you are paying for insurance cover you don’t need or are inadequately insured. Investment options This will show what your money is invested in, and in many cases the performance of each investment. Your investment choices will be one of the main influences on the ultimate value of your retirement savings. Professional advice in this area is strongly recommended. Other things to check Have you provided your tax file number? If not, the fund will be deducting too much tax from your contributions and earnings. Have you made a binding death benefit nomination? This allows you to choose, within applicable rules, who your superannuation is paid to upon your death. Is your name and address up to date? Is it possible you have ‘lost super’? This occurs when a super fund can no longer contact you. The Australian Tax Office can help you find lost super. Start here https://www.ato.gov.au/forms/searching-for-lost-super/ More than one statement? Ideally, you should consolidate all your superannuation into one fund. This will avoid duplication of fees and insurance premiums and make your super much easier to manage. Invaluable advice Super is one area in life where professional advice can really pay off. If you need help with understanding investment options, consolidating multiple super funds, finding lost super, or ensuring you have the right insurance cover, talk to your financial adviser. The sooner you do, the sooner you’ll be on track to growing your super pot of gold.   The information provided in this article is general in nature only and does not constitute personal financial advice.

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