Life Risk Insurance

Income Protection

Income protection policies provide income replacement while you are totally disabled or partially disabled and unable to work as a result of either sickness or injury.

Typically it pays a fixed monthly payment (usually up to 75% of your income) if you are temporarily unable to work due to a disability.

You can add optional benefits if required and in most cases you are able to claim a tax deduction on your premiums.

These payments can be used to meet everyday living expenses such as mortgage repayments and other household costs. The amount of income replacement is decided at policy commencement.

Health insurance may cover a proportion of your medical bills, but it wont’ pay your rent or mortgage and living costs.

And don’t count on a Centrelink Sickness Allowance. Even if you are eligible, you can only receive up to $210.45 a week if you are single, or up to $189.90 per week per person if part of a couple. So what’s the answer? Income Protection Insurance.

LIKELIHOOD OF DISABILITY

       -        70% of working Australians at some point will suffer from a long term medical condition as a result of a sickness or accident which lasts or is expected to last 6 months or more.

-       Sick leave will generally only pay for up to two weeks for each year of service.

-       Less than 50% of all claims result from accidents meaning that, a person is more likely to be incapacitated/disabled from sickness.

 PURPOSE

      -       To continue an income stream to meet personal and daily living expenses.

-       To provide the ongoing ability to maintain other protection, savings, investment and retirement plans

TAXATION

 Premiums are tax deductible however the income benefit is taxed at marginal rates.

 WHO IS LIKLEY TO NEED THIS COVER?

-       Everyone who relies on a regular income to live and to pay for life’s necessities.

-       Particularly the self employed who do not have the benefit of employer support.

 BENEFIT PERIOD

The benefit period is the period of time that the claimant will receive benefits. The periods can differ for sickness and accident but are normally the same. Different periods can be offered by different insurers but the following are more usual:

-       2 years;

-       5 years;

-       to age 60;

-       to age 65’;

WAITING PERIOD

The waiting period is the number of days a person has to wait before income benefits start to be paid.

The usual waiting options are:

      -       14 days; -       30 days; -       60 days; -       90 days; -       6 months; -       1 year; or -       2 years.

Life Insurance

Life Insurance provides a cash lump sum to your estate or in accordance with your directions if you die within the duration of the policy.

The cash lump sum may also be advanced if you are diagnosed with a terminal illness, and have less then twelve months to live.

 Total and Permanent Disability

Disability cover pays out a lump sum if you become totally and permanently disabled.

It covers the total and permanent disability events as defined with the policy.

DEFINITION

Total and permanent disablement is offered as a stand alone benefit by a limited number of insurers, but is usually an option on a term life cover. It aims to provide a lump sum of money should a person suffer an illness or injury which totally and permanently incapacitates them from working. This usually applies to any occupation for which they are reasonably suited by education, training and experience.

Most companies now offer an “Own Occupation” definition for selected occupations that would pay a benefit to a person that may still be able to work in some capacity but never again in their occupation (i.e. prior to the claim event).

It should be noted that, importantly, arranging TPD cover with an own occupation definition under superannuation should be addressed with great caution. The trustees of the superannuation fund will not be able to release the funds to the member unless superannuation Condition of Release has been satisfied. The usual TPD definition that applies in these circumstances is an ‘Any Occupation’ definition.

PURPOSE

The function of Total and Permanent Disablement is to:

       -       Cover the mortgage or pay other debts;

-       Protect business against loss of sales and profits;

-       Maintain business lines of credit;

-       To provide an income stream;

-       To provide money for home modification.

TAXATION

Premiums are generally not tax deductible unless they are held within a Superannuation Fund or have been taken out as key person (revenue) insurance.

BENEFIT PAYMENTS

If a TPD benefit is paid from a non-superannuation fund the proceeds are usually exempt from income tax unless the policy was taken out for a key person (revenue) purposes. TPD claim proceeds usually are exempt from capital gains tax only if they are received by the insured person, their spouse or a relative of the insured person.

If the benefit is paid from a superannuation fund then it will be classed as a disability superannuation benefit. A portion of the benefit may be classed as a tax free component.

There are a number of important issues to consider when recommending TPD in super such as restrictions on the access of benefits, and the tax treatment on the payment of the benefit. Where the insured person meets the total and permanent incapacity condition of release, effective payment strategies will differ depending on the client’s age and income requirements.

WHO IS LIKLEY TO NEED THIS COVER?

      -       Younger people who would wish to maintain their independence;

-       Those with no income protection insurance;

-       Those with dependants;

-       Business partners;

-       Business with key employees.

Critical Illness Or Trauma

Critical Illness cover will take away your financial worries, so you can get back on track.

Critical illness pays you a lump sum if you develop of suffer certain critical illnesses. You receive the money when you need it most, so you have one less thing to worry about.

Critical conditions can cover Heart Attack, Coronary Artery By-Pass Surgery, Cancer, Stroke and loss of independence where you are permanently unable to look after yourself.

DEFINITION

A lump sum payment for those who suffer a major health trauma.

PURPOSE

If a person suffers a medical trauma, term life insurance wont help as the person is still alive. Suppose a person has a mild heart attack and is seriously ill but is able to return to work after two months. Will he or she be as productive as before or stand the stress associated with working as hard? Policies like income protection and TPD may not be suitable since payouts depend on the effect of the event after its occurrence. What is needed is a cover like Critical illness which pays out on the actual occurrence of the incident. The function of trauma insurance is to:

-       pay for specialist or international medical attention;

-       cover the cost of modifications to the home; and

-       avoid financial stress in recuperation (debts, etc.)

TAXATION

Premiums are not tax deductible however benefit are paid tax free. An exception occurs where the trauma insurance is part of key person insurance.

WHO IS LIKLEY TO NEED THIS COVER?

-       Those with a mortgage or other debt, a family and associated responsibilities.