Protecting your most important asset

n Your most important asset n What is insurance? n Types of insurance n Why you need insurance n What are the costs? n Ownership via superannuation n Summary Agenda

n Many people consider their family home, investment property or superannuation to be their greatest financial asset n What about your future income? n How important has your income been in achieving your current financial position? n Who depends on your income? What is your most important asset?

n A 45 year old earning $60,000 today will earn a total of $1.6 million until retirement n A 35 year old earning $50,000 today will earn a total of $2.4 million until retirement n A 25 year old earning $40,000 today will earn a total of $3 million until retirement (Assumes retirement at age 65 and 3% annual salary increases) Earning income potential

A Few Questions to Think About? n What would happen if you were not around to provide for your family? n What would happen if your spouse/partner was not around? n Who would pay the mortgage if you had a short term illness? n What would happen if you were not able to work due to a permanent disablement or severe illness? n What would happen if you had to give up work to care for a family member?

What is Insurance? n Transfer of risk from the “insured” person to the “insurer” (insurance company) n Insurance creates an environment in which people/businesses can operate with peace of mind n Without insurance, the occurrence of unexpected & tragic events can leave a family/business financially destitute n Insurance is a means of protecting your wealth, assets, income, life, dependants, health and future plans

Various Insurance Categories The main insurance categories n Personal Insurance (Life, Trauma, Disablement, Income….) n Health Insurance n General Insurance (House, Contents, Car, Boat……) n Commercial Insurance (Business e.g. Private Indemnity or Public Liability)

Types of Personal Insurance n Life/Term Insurance n Total and Permanent Disablement n Trauma/Critical Illness n Income Protection n Business Insurance

A Few Facts n Coronary Heart Disease (19%) and Stroke (9%) are the leading causes of death overall in Australia n Males CHD death rates are nearly twice that for females n Cancer is the most common cause of death for females aged and for males and females aged years n Breast cancer is the most common cause of cancer deaths amongst women n Lung cancer is the most common cause of cancer deaths amongst males, followed by colorectal cancer Source: Australian Institute of Health and Welfare, 2004

Life/Term Insurance n Life insurance insures a person in the event of death n It pays a specified lump on death of the insured person n Some super funds automatically provide you with some level of insurance. However, the default level of cover is not enough to meet the needs of most people

What do you use life insurance for? On death, a family can use life insurance to:  Pay medical and funeral expenses  Pay legal expenses (wills, estate…)  Clear debt (home mortgage, credit cards, personal loans)  Replace household income For businesses:  To fund the purchase of the insured’s share of the business  To fund capital expenses in the event of death  To fund income  To cover any loan guarantor arrangements

Who should consider Life Insurance People with dependants who require funds to cover: n Repayment of debts n Replacement of household income n Education of children n Childcare and housekeeping n Care of disabled children n Medical and Funeral Expenses

Who should consider Life Insurance Businesses to cover:  Replacement of a key person  Succession Planning within the business  Business loans  The life of a loan guarantor

Total and Permanent Disability (TPD) Insurance n Pays an agreed lump sum on the insured being classified as never being able to work again n TPD benefits are normally restricted to the amount of life cover n TPD is normally combined with life insurance to provide additional security in the case of severe disability

Cost of Life Insurance 40 year old non-smoker Male Life insurance with any occupation TPD $200,000 Cost is approx $350pa Cost is approx $690pa – smoker 40 year old non-smoker Female Life insurance with any occupation TPD $200,000 Cost is approx $320pa Cost is approx $550pa – smoker

Illness  Many people who suffer from cancer or from cardiovascular disease will survive  However, unless you die from your condition, your life insurance will not pay any money  Coping with illness can carry significant financial costs

Trauma/Critical Illness/Recovery Insurance Pays a Lump Sum when the insured person suffers a SPECIFIED medical condition. Most policies have around 40 specified medical conditions. The most common specified medical conditions claimed are: n Cancer n Stroke n Heart Attack n By-pass surgery n Angioplasty These 5 conditions make up approximately 80% of all trauma claims.

Why Do You Need Trauma Insurance? Used to provide financial cushion in the event of a major illness Trauma insurance can cover costs associated with: n Medical & rehabilitation n Financial stress of income loss n Employment of home nursing n Modification of home/vehicle n Travelling overseas to seek specialised medical assistance

Who Should consider Trauma Insurance? n Anyone with debt n Couples with Children n House wife/husband who are not employed but essential to the family’s well being n Those unable to purchase income protection n Business partners

Cost of Trauma Insurance 40 year old, Male, Non smoker, Clerical/Admin Occupation Sum insured amount of $100,000 Cost is approximately $350 pa Cost is approximately $730 pa – Smoker 40 year old, Female, Non smoker, Clerical/Admin Occupation Sum insured amount of $100,000 Cost is approximately $380 pa Cost is approximately $680 pa – Smoker Premiums are based on stepped premiums for Stand Alone Trauma

Injury n In , 11% of persons of all ages reported long term conditions which resulted from injury. n Males of all ages are more likely than females to experience injury n The most common injuries in were cuts (28%), followed by falls of one metre or less (21%) n Physical injures can inhibit your ability to earn income and be a serious impediment to your financial future n Workers compensation can protect you financially for injuries suffered at work, but those that occur outside of work are not covered Source -

Income Insurance  Pays a benefit (normally 75% of Salary) if the insured person is unable to work due to sickness or injury.  Pays an income stream over the selected benefit period chosen (can be 2 or 5 years or to age 60 or 65)

Why do you need Income Insurance n Guarantees stability of the household income to cover general living expenses n Able to continue paying mortgage/loans n Able to continue paying bills n Able to continue making superannuation contributions

Who should consider Income Insurance? n Anyone earning a personal exertion income n Anyone with mortgage/loan commitments n Anyone with family members that rely on your income

Income insurance Options  Waiting Period - Can be between 2 weeks to 2 years. The time you have to wait before the insurance company begins to pay you. Shorter the waiting period more expensive the product. Waiting periods can be selected to fit with accumulated sick leave or other leave entitlements  Benefit Period - Can be as short as 2 years or to age 65. The period of time you will be paid your benefit if you are unable to work. Longer the benefit period the more expensive the product  Agreed Value or Indemnity – Defines how your benefit is calculated based on the level of income you’ve earned in the past. The Indemnity contract is cheaper

Key Features of Income Insurance n You should understand the main criteria and how they are defined in your insurance contract n Premiums are tax deductible Main criteria you should be aware of n Total disability definition n Partial disability definition n Offsets n Exclusions

Costs of Income Insurance 40 year old, Male, Non smoker, Income $40,000. Benefit of $2,500 per month Policy is a 30 day wait payable to age 65 with claim indexation Average premium is $750 pa Average premium is $1,000 pa – Smoker 40 year old, Female, Non smoker, Income $40,000. Benefit of $2,500 per month Policy is a 30 day wait payable to age 65 with claim indexation Average premium is $1000 pa Average premium is $1300 pa – Smoker

Ownership via superannuation  Premiums are tax deductible for Death, TPD and Income Protection / Salary Continuance (TD 2007/3)  Premiums can be funded by either :  Employer contributions (eg. SG)  Deductible contributions  Personal Contributions  Investment earnings  Benefits can be paid with certainty to the intended recipient (binding nominations)  Taxation of proceeds depends on:  Who is the beneficiary ?  What their relationship is with the deceased ?

n Many people are underinsured n Insurance allows you to transfer the financial risks of death/disability/ illness to an insurance company n Whose financial future are you putting at risk by not having enough insurance cover? Conclusion

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