Provide advice in Life Insurance Introduction to Life Insurance

DISCLAIMER The material contained in the following slides have been adapted from various sources including the material in the recommended text. All references to legislation are intended as a guide only. Learners are encouraged to use this material as a supplementary source to their text, notes and lectures. The co-ordinator of these slides is not responsible for their currency and use and disclaims all claims made by any user, does not warrant their accuracy and provides no warranty as to the effectiveness of these slides in providing advice to your clients

Insurance Under Superannuation Superannuation funds offer life insurance, TPD (any occupation only) and Income protection cover for their members. The nature and extent of cover will vary between funds. Trauma insurance is not normally offered by superannuation funds. Advantages: Lower effective tax rate producing a lower premium; the requirements to submit to a medical examinations tend to be less stringent Using its bulk buying power a superannuation fund may be able to achieve premium concessions from an insurer. Premiums don’t affect your cash flow position as they are paid from the monies in your superannuation The PDS gives the client a reasonably comprehensive description of the policy, the factors associated with establishing the premium, taxation and other relevant issues. Material information refers to any matter that the client could be reasonably expected to know is relevant to the insurer’s decision.

Insurance Under Superannuation Disadvantages: It is not uncommon for even “straight-forward” death claims to take up to 3 months or more to be paid – similar claims for life insurance not attached to superannuation could be paid within 4 weeks. This is because when insurance is attached to superannuation, the clalim first goes to the life company and after the life company pays the claim, it is deposited in the superannuation fund. Then, the trustees of the superannuation fund need to organize a meeting to decide if and when and to who the monies need to be paid to…. The insurances offered within superannuation; do not generally offer the same level of ancillary benefits as those outside superannuation - i.e. Optional benefits are generally not available – hence the insurance is of a “basic” nature and you should weigh this up when comparing the relatively cheaper price of an equivalent amount of insurance cover “outside” the superannuation environment. Since the premiums for insurances are funded from a client’s superannuation, their final retirement balance in superannuation could be substantially lower and this could compromise their retirement The PDS gives the client a reasonably comprehensive description of the policy, the factors associated with establishing the premium, taxation and other relevant issues. Material information refers to any matter that the client could be reasonably expected to know is relevant to the insurer’s decision.

Insurance Under Superannuation Disadvantages: There could be severe tax consequences if a claim is paid to a person who is not a financial dependent. For instance, SIS and taxation law offer differing treatment of children over 18 years of age. Total and Permanent Disability (TPD) insurance is generally only available on an “any” occupation basis only. As we discussed, this “any” occupation definition is much more restrictive and therefore harder to claim A lump sum TPD payment for an individual below the age of 55 could have severe taxation consequences. We have discussed that the amount of tax paid is a formulae based on your age, service period and amount of time to retirement. Depending on the circumstances of then the disability occurs, the actual tax on the benefit paid could be as high as 22% The PDS gives the client a reasonably comprehensive description of the policy, the factors associated with establishing the premium, taxation and other relevant issues. Material information refers to any matter that the client could be reasonably expected to know is relevant to the insurer’s decision.

Insurance Under Superannuation Disadvantages: Income protection (also known as salary continuation) insurance attached to superannuation could be of a basic nature and usually is “indemnity value”. Indemnity value means that the client has to show proof of their insured annual income at claim – if the annual income that they have actually earned is less than the income they have insured for, then they will be paid the lower income. Outside superannuation, Income protection is available via indemnity or agreed value (agreed value is where you can specify the amount of your annual salary that you wish to insure and you do not generally need to supply proof of income at claim) The PDS gives the client a reasonably comprehensive description of the policy, the factors associated with establishing the premium, taxation and other relevant issues. Material information refers to any matter that the client could be reasonably expected to know is relevant to the insurer’s decision.