Do not put content on the brand signature area May 2008 Life insurance through superannuation Wayne Belford ING Australia.

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 2 Agenda The 3 step approach Cost & affordability

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 3 The 3 step approach

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 4 The 3 step approach 1.Make sure estate planning and accessibility needs can be met 2.Gross-up cover to take into account superannuation exit taxes 3.Conduct cost comparison of superannuation versus non-superannuation ownership

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 5 Estate planning & accessibility Estate planning treatment and accessibility of benefits will depend on the trigger event and superannuation fund’s trust deed Death Permanent incapacity Terminal illness Temporary incapacity Preservation age Retirement

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 6 Death cover Superannuation fund trustee may pay death benefits to Qualifying dependants as defined under the SIS Act Spouse Child Financial dependant Interdependant Deceased’s estate who can then make payment to Dependant Non-dependant

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 7 Death cover Proposed removal of discrimination of same sex couples and their children in areas such as Superannuation and taxation of death benefits (from 1 July 2008) Social security (from 1 July 2009) Medicare and Pharmaceutical Benefits Scheme safety net (from 1 January 2009) Fringe benefits tax (from 1 April 2009)

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 8 Financial dependant? Adult child who can afford to meet necessary living costs however relied on deceased to fund lifestyle expenses such as annual holiday, luxury motor vehicle etc… Adult child employed in family business owned by deceased and salary derived is used to fund necessary living costs Adult child receives family trust distributions to meet necessary living costs from a trust where deceased was trustee X X X

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 9 TPD & trauma cover Permanent incapacity Member unlikely to engage in gainful employment which they are reasonably qualified by education, training or experience Possible release issues for certain TPD definitions Own occupation Home-maker Non-working Consider partial superannuation ownership if appropriate

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 10 Accessibility if ‘permanent incapacity’ not met? Arthur (45) has own-occupation TPD cover in his superannuation fund. He can no longer work as a surgeon but is able to return to general practice John (57) has own-occupation TPD cover in his superannuation fund and is able to work Linda (47) has a trauma policy owned by her self-managed superannuation fund If terminally ill X

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 11 TPD & trauma cover Preservation age Permanent retirement Transition to retirement pension Age 65 Terminal illness Two qualified medical opinions (one must be a specialist) Member is reasonably expected to pass away due to ill-health in the next 12 months

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 12 Salary continuance cover Temporary incapacity Salary continuance payments plus leave payments and worker’s compensation etc. must not exceed gain or reward being received before injury or illness Potential issues for agreed or guaranteed cover Potential issues if policy has no offset clause for leave or worker’s compensation payments Other release conditions can be utilised if met

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 13 The 3 step approach 1.Make sure estate planning and accessibility needs can be met 2.Gross-up cover to take into account superannuation exit taxes 3.Conduct cost comparison of superannuation versus non-superannuation ownership

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 14 Grossing-up cover to allow for exit taxes Grossing-up sums insured for cover held via superannuation could depend on factors such as Type of cover Trigger event Recipient of payment Age at time of payment Mode of payment

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 15 Death cover – lump sum Lump sum payments are tax-free to qualifying dependants as defined under the ITAA Act Spouse Ex-spouse Child under age 18 Financial dependant Interdependant Proposed to include same sex couples and their children from 1 July 2008

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 16 Death cover – lump sum Taxable component of lump sum payments are taxable to non-dependants as defined under the ITAA Act Taxed element16.5%* Untaxed element31.5%* Untaxed element is created where premiums are claimed as a tax deduction by the fund’s trustee * The 1.5% Medicare Levy does not apply if payment is made via deceased’s estate

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 17 Death cover – lump sum Service period start date is used to determine taxed and untaxed elements A superannuation fund’s service period start date is earlier of these dates Date fund membership is established Service period start date of a rollover payment made to the fund Date began work with employer who has made employer contributions to the fund

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 18 Case study – William Service start Death Last retirement day Assumptions William’s service period began on his 35 th birthday and his last retirement day is his 65 th birthday He passes away on his 53 rd birthday % completed service Tax free component & taxed element of taxable component

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 19 Case study – William Tax componentsAccumulated super Tax free $0 Taxable (taxed element) $250,000 Taxable (untaxed element) $0 At time of William’s passing he had $50,000 in death cover owned via superannuation All benefits are to be paid to his daughter Eva (26) who is a non-dependant How much will Eva receive after-tax?

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 20 Case study – William Tax components Insurance Lump sum tax Accumulated superannuation Lump sum tax Tax free $0 Taxable (taxed element) $30,000$250,000 Taxable (untaxed element) $20,000$0 William’s death cover is held separate to his accumulated superannuation interest Two lump sum death benefits will be paid $0 $41,250 $0 $4,950 $6,300

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 21 Case study – William Tax components Accumulated superannuation with insurance Lump sum tax Tax free $0 Taxable (taxed element) $180,000 Taxable (untaxed element) $120,000 If William’s death cover was held as part of his accumulated superannuation interest One lump sum death benefit will be paid $0 $29,700 $37,800

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 22 Case study – William Insurance heldNo anti-detrimentAnti-detriment Separate super interest $247,500 With accumulated super $232,500 Eva’s net lump sum summary table $284,300 $266,700

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 23 Case study – Tanya Tanya (49) has $200,000 in accumulated superannuation benefits $100,000 tax free $100,000 taxable She also has $400,000 death cover via superannuation and a 30% completed service In the event of her death, de facto Joe will receive $400,000 with the remainder going to her non-dependant child

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 24 Case study – Tanya Accumulated superannuation with insurance $600,000 $100,000 tax free $80,000 taxable (taxed) $420,000 taxable (untaxed) Death cover forms part of accumulated superannuation interest Non-dependant child to receive 1/3 ($200,000)

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 25 Case study – Tanya Super account $200,000 $100,000 tax free $100,000 taxable (taxed) Insurance via superannuation $400,000 $120,000 taxable (taxed) $280,000 taxable (untaxed) Death cover held separate to accumulated superannuation interest Non-dependant child to receive this

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 26 Case study – Tanya Insurance heldNo anti-detrimentAnti-detriment Separate super interest $583,500 With accumulated super $554,500 $599,694 $570,142

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 27 Death – pensions Pension payments from a death benefit pension are tax free to a beneficiary Once beneficiary reaches age 60; or Pension formed with 100% tax free component; or Deceased was at least 60 years old at time of death Superannuation pension tax offset of 15% applies to taxable pension payment

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 28 Case study – Jake & Pam Jake (49) has passed away with accumulated superannuation of $500,000 $400,000 tax free $100,000 taxable Pam (43) is Jake’s spouse and sole beneficiary of his superannuation benefits $500,000 death cover on Jake’s life is held via superannuation Pam wishes to receive $500,000 as a lump sum which will largely be used to repay home mortgage

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 29 Case study – Jake & Pam Accumulated superannuation with insurance $1,000,000 $400,000 tax free (40%) $600,000 taxable (60%) Death cover forms part of accumulated superannuation interest Remaining amount used to commence death benefit pension which will be 60% taxable

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 30 Case study – Jake & Pam Super account $500,000 $400,000 tax free $100,000 taxable Insurance via superannuation $500,000 $500,000 taxable Death cover held separate to accumulated superannuation interest Used to commence death benefit pension which will be 20% taxable

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 31 TPD & trauma cover If withdrawals meet terminal illness definition Lump sum payments will be tax-free Pension payments could be subject to tax if under age 60

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 32 If withdrawals meet disability superannuation benefit definition, a tax-free invalidity amount is created according to incomplete service Two qualified medical opinions required to sign-off that any occupation definition is met Taxable component is taxed if recipient is under age 60 Low rate cap of $140,000 applies for lump sums received on or after preservation age Pensions qualify for 15% tax offset TPD & trauma cover

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 33 Case study – Lorna Service start TPD Last retirement day Assumptions Lorna’s service period began on her 35 th birthday and her last retirement day is her 65 th birthday She stops being capable of ever being gainfully employed on her 53 rd birthday % incomplete service Tax free invalidity amount

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 34 Salary continuance cover Salary continuance payments are generally taxed at member’s marginal tax rates Including from age 60

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 35 The 3 step approach 1.Make sure estate planning and accessibility needs can be met 2.Gross-up cover to take into account superannuation exit taxes 3.Conduct cost comparison of superannuation versus non-superannuation ownership

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 36 Case study – the Martin’s Tom (43) and Lyn (42) have two children Jackie (7) and Kylie (5) Their financial planner has identified a need for $1,500,000 death & TPD cover on Tom’s life A personally owned income protection policy is also recommended Tom’s marginal tax rate is 41.5% His date of birth is 1 July 1964 and the fund’s relevant service period start date is 1 July 2000

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 37 Case study – the Martin’s Superannuation death cover ownership Required sum insured if lump sum to be paid to qualifying dependants is $1,500,000 Required sum insured if lump sum to be paid to non-dependants is $2,065,045* Taxable (taxed) component- $596,628 Taxable (untaxed) component - $1,495,417 * Assumed date of death is 1 July 2008

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 38 Case study – the Martin’s Superannuation TPD cover ownership TPD cover of $1,731,000 is required if $1,500,000 net lump sum to be paid* Tax free component- $656,581 Taxable component- $1,074,420 * Assumed date of permanent incapacity is 1 July 2018

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 39 Case study – the Martin’s Non-superannuation ownership Premium - $2,570 pa Superannuation ownership Premium - $2,800 pa Grossed-up TPD cover If funded with salary sacrifice or personal deductible contributions, after-tax cost is approximately $1,638 Annual savings - $932 or 36.3%

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 40 Case study – Rylie Rylie (43) is seeking to establish cover via his super fund Recommended net sums insured are $800,000 death & TPD (own occupation) Outstanding mortgage - $200,000 Dependants to receive $700,000 on death His date of birth is 1 July 1964 and the fund’s relevant service period start date is 1 July 2005 Personally owned income protection (guaranteed cover) is in place

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 41 Case study – Rylie Rylie’s marginal tax rate is 41.5% and is able to implement a salary sacrifice strategy What is the best ownership structure for Rylie? After some investigation, Rylie only requires short-term access to $400,000 on TPD Outstanding mortgage - $190,000 Meet living expenses to age 60 - $210,000 plus income protection benefits

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 42 Case study – Rylie Option 1 Non-super ownership - $800,000 death & TPD Premium - $1,780 pa Option 2 Super ownership - $842,095 death & $452,726 TPD Non-super ownership - $400,000 TPD Total premiums - $2,022 pa After-tax cost - $1,453 (annual savings of $327 or 18.3%)

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 43 Case study – Rylie Option 3 Super ownership - $842,095 death & $400,000 TPD TPD not grossed-up as this will be withdrawn tax-free from age 60 Non-super ownership - $400,000 TPD Total premiums - $1,968 pa After-tax cost - $1,422 (annual savings of $358 or 20%)

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 44 Case study – Anna Anna is a single mother with a modest annual income of $35,000 She personally owns death & TPD cover at an annual cost of $500 Annual premiums if held via super is $600 She cannot afford to pay more than $500 Anna makes a $500 after-tax contribution to her existing OneAnswer Personal Super account Government co-contribution is $750 Trustee rebate is $90

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 45 Cost & affordability

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 46 Life time spend Source: Business Associates Network, Dr Troughton provides consultancy services to businesses and individuals Insurance

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 47 Price should not compromise advice Funding cover via superannuation with pre-tax income or existing superannuation savings Trauma in self-managed funds Premium freeze on term life, TPD and trauma Income protection Standard protection products up to a 30% saving Indemnity cover up to a 20% saving Split waiting and benefit period up to a 30% saving

Do not put content on the brand signature area Orange RGB= 255,102,000 Light blue RGB= 180,195,225 Dark blue RGB= 000,000,102 Grey RGB= 195,191,183 ING colours Warm yellow RGB= 255,204,0 48 Other issues