When the concept of the DisabilityCare scheme (formerly known as the NDIS) was first announced by the Government, concerns were raised about the impact that it may have on people’s attitude toward life insurance.
It is clear that there is confusion about the scheme – what it is and what it is not.
A snapshot of DisabilityCare
DisabilityCare Australia will be aimed at those who are most in need, providing long term, high quality support for people who are born with, or who later acquire, a permanent disability that significantly affects their communication, mobility, self-care or self-management.
Support may be provided if the disablement is permanent or where early intervention can mitigate the impact on the individual’s ability to function (primarily aimed at children). Those accepted to participate in the scheme will have a personalised support plan developed and the necessary funding provided. It will also include a comprehensive information and referral service, to help people with disabilities who need access to mainstream, disability and community support.
Once fully operational, the scheme will provide support to about 410,000 individuals[1] – a fraction of the 4 million Australians who suffer some type of disablement and the 1.25 million with severe or profound disablement according to the ABS.
What DisabilityCare is not
| |
Is it covered? |
What the scheme rules say |
| Day-to-day living costs |
NO !! |
The scheme will not fund any day-to-day living costs that would generally be incurred by the general community (such as rent, groceries, utilities) except where this cost was not incurred as a direct result of the person’s disability. |
| Income replacement |
NO !!
|
The scheme will not provide support that is for income replacement purposes. The Disability Support Pension will continue to provide this level of support. |
Why personal life insurance is still important
1. The DisabilityCare scheme will not cover you for loss of income nor assist with other living expenses such as paying the rent or mortgage.
2. Personal insurance is concerned with whether the insured person meets the defined event and policy terms regardless of the level of support available to them through their families, carers or the community in general.
3. Personal insurance like Income Protection can provide you with a regular income while you are temporarily unable to work and may also include payment of rehabilitation expenses.
4. Critical illness or total and permanent disablement insurance gives you greater flexibility over how to use your lump sum benefit.
5. Lump sum benefits can be used to support rehabilitation, pay for necessary aids or future medical costs or to provide an income over the longer term.
6. Part of a personal life insurance benefit could also be used to pay for a holiday for your family or to supplement income that is foregone as you gradually return to work.
A practical example
John is 53, married to Ann with two high school age children. He suffers a stroke and is unable to work for six months but expects to be able to gradually return to work, albeit in a reduced capacity.
If John has income protection cover to age 65 then he’d receive the full monthly benefit while he is totally disabled and a partial benefit when he does eventually return to work in a reduced capacity provided he met the policy terms. This benefit would cover John’s loss of income.
If John has taken out Crisis Recovery cover then he would receive a lump sum benefit provided he meets the policy terms. This amount could be used to pay for out of pocket medical expenses and modifications to his car and home. John has control over how he chooses to spend this amount and could decide to take extended time off work. This amount could also cover any income foregone if Ann chose to stay at home to care for John.
If John was relying on qualifying for support under DisabilityCare, provided he was accepted for funding support, this could cover things like ongoing physiotherapy to assist with improved functioning and perhaps a motorised wheelchair to assist John’s mobility but would not provide income replacement support or cover other day-to-day living costs.
Impacts to underinsurance
Australians already chronically underinsure their lives. According to RiceWarner,[2] for total and permanent disability, the level of underinsurance is over $8 trillion and, for income protection alone, more than $600 billion. According to their research, the level of insurance cover held is less than 20% of need.
This is concerning given the number of Australians who will be impacted by accidents or illness each year. A 2008 survey conducted by the Melbourne Institute[3] found that more than 235,000 working-age Australians, living as members of a couple with dependent children, had suffered a serious illness or injury in the previous 12 months. This same survey found that more than 17,000 of this same cohort were unable to continue working due to illness, disability or injury during the previous 12 months. This emphasises the need for adequate levels of personal insurance.
For the everyday Australian, this should not necessarily be a choice between DisabilityCare and personal life insurance. It is impossible to predict whether a future disablement will be severe enough to qualify for DisabilityCare. Personal life insurance allows the individual to take control should the unexpected happen, whether it’s to replace income or provide a lump sum that can be used for a variety of purposes, such as to cover debts and other expenses.
DisabilityCare is a big step forward and will assist many people – but in our view, is no substitute for life insurance.
Source | AIA
[1] http://www.ndis.gov.au/about-an-ndis/frequently-asked-questions/
[2] Underinsurance in Australia, RiceWarner Actuaries, December 2012
[3] HILDA User Manual – Release 8, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne 2010 (available at www.melbourneinstitute.com/hilda/statreport.html)
Why DisabilityCare is no replacement for life insurance
/in Personal Risk Financial Advice /by Fil-BattistiWhen the concept of the DisabilityCare scheme (formerly known as the NDIS) was first announced by the Government, concerns were raised about the impact that it may have on people’s attitude toward life insurance.
It is clear that there is confusion about the scheme – what it is and what it is not.
A snapshot of DisabilityCare
DisabilityCare Australia will be aimed at those who are most in need, providing long term, high quality support for people who are born with, or who later acquire, a permanent disability that significantly affects their communication, mobility, self-care or self-management.
Support may be provided if the disablement is permanent or where early intervention can mitigate the impact on the individual’s ability to function (primarily aimed at children). Those accepted to participate in the scheme will have a personalised support plan developed and the necessary funding provided. It will also include a comprehensive information and referral service, to help people with disabilities who need access to mainstream, disability and community support.
Once fully operational, the scheme will provide support to about 410,000 individuals[1] – a fraction of the 4 million Australians who suffer some type of disablement and the 1.25 million with severe or profound disablement according to the ABS.
What DisabilityCare is not
Why personal life insurance is still important
1. The DisabilityCare scheme will not cover you for loss of income nor assist with other living expenses such as paying the rent or mortgage.
2. Personal insurance is concerned with whether the insured person meets the defined event and policy terms regardless of the level of support available to them through their families, carers or the community in general.
3. Personal insurance like Income Protection can provide you with a regular income while you are temporarily unable to work and may also include payment of rehabilitation expenses.
4. Critical illness or total and permanent disablement insurance gives you greater flexibility over how to use your lump sum benefit.
5. Lump sum benefits can be used to support rehabilitation, pay for necessary aids or future medical costs or to provide an income over the longer term.
6. Part of a personal life insurance benefit could also be used to pay for a holiday for your family or to supplement income that is foregone as you gradually return to work.
A practical example
John is 53, married to Ann with two high school age children. He suffers a stroke and is unable to work for six months but expects to be able to gradually return to work, albeit in a reduced capacity.
If John has income protection cover to age 65 then he’d receive the full monthly benefit while he is totally disabled and a partial benefit when he does eventually return to work in a reduced capacity provided he met the policy terms. This benefit would cover John’s loss of income.
If John has taken out Crisis Recovery cover then he would receive a lump sum benefit provided he meets the policy terms. This amount could be used to pay for out of pocket medical expenses and modifications to his car and home. John has control over how he chooses to spend this amount and could decide to take extended time off work. This amount could also cover any income foregone if Ann chose to stay at home to care for John.
If John was relying on qualifying for support under DisabilityCare, provided he was accepted for funding support, this could cover things like ongoing physiotherapy to assist with improved functioning and perhaps a motorised wheelchair to assist John’s mobility but would not provide income replacement support or cover other day-to-day living costs.
Impacts to underinsurance
Australians already chronically underinsure their lives. According to RiceWarner,[2] for total and permanent disability, the level of underinsurance is over $8 trillion and, for income protection alone, more than $600 billion. According to their research, the level of insurance cover held is less than 20% of need.
This is concerning given the number of Australians who will be impacted by accidents or illness each year. A 2008 survey conducted by the Melbourne Institute[3] found that more than 235,000 working-age Australians, living as members of a couple with dependent children, had suffered a serious illness or injury in the previous 12 months. This same survey found that more than 17,000 of this same cohort were unable to continue working due to illness, disability or injury during the previous 12 months. This emphasises the need for adequate levels of personal insurance.
For the everyday Australian, this should not necessarily be a choice between DisabilityCare and personal life insurance. It is impossible to predict whether a future disablement will be severe enough to qualify for DisabilityCare. Personal life insurance allows the individual to take control should the unexpected happen, whether it’s to replace income or provide a lump sum that can be used for a variety of purposes, such as to cover debts and other expenses.
DisabilityCare is a big step forward and will assist many people – but in our view, is no substitute for life insurance.
Source | AIA
[1] http://www.ndis.gov.au/about-an-ndis/frequently-asked-questions/
[2] Underinsurance in Australia, RiceWarner Actuaries, December 2012
[3] HILDA User Manual – Release 8, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne 2010 (available at www.melbourneinstitute.com/hilda/statreport.html)
Leukaemia Foundation: We need some help
/in Financial Advice General Info /by Fil BattistiPlease Sponsor Us!
Raising attention and money for Leukaemia
We’re participating in the Aussie Muscle Car Race with a 1963 Chrysler AP5 Regal Valiant.
In 2013 Danny Caiazza and Angelo Caiazza participated in the Aussie Muscle Car Run, supporting the Leukaemia Foundation.
Car #8 carried out the inaugral trophy for the highest fundraisers, raising an AMAZING $74,000. We are very excited to announce this year we will “Bring the Beast to Bathurst”.
We hope you can help us to reach our fundraising goal to support South Australian families, like ours, who have been affected by blood cancer. Our motivation for participating??
Our love of muscle cars and a very special lady – Francesca De Candia (Angelo’s Mother in Law) who fought the tough battles of Acute Myeloid Leukaemia and the challenges that it brought with it.
You can help us make a difference by donating to Car #8 – Cruisin for Fran. ALL FUNDS RAISED go towards the Leukaemia Foundation’s Vision to Cure and Mission to Care!
Winning for a good cause!
Halfway across Oz
Speedy Help needed
2014 End of year Superannuation Strategies
/in Financial Advice General Info /by Fil-BattistiThe lead up to the end of the financial year is an opportune time to review your financial situation and avoid the last minute rush. We can help you with a number of strategies that can improve your financial position including the potential to reduce tax and take advantage of the concessional superannuation environment.
Here are some super strategies worth considering.
Superannuation co-contribution is a government incentive to help low income earners build their superannuation balances. If you earn less than $48,516 (2013/14) and make personal contributions to super you may be eligible for up to $500. The amount depends upon your income with the government contributing 50 cents for each dollar you contribute, up to a maximum of $500.
Personal deductible superannuation contributions is a helpful strategy for eligible individuals as contributions are generally taxed at a concessional rate of 15% compared to a higher marginal rate. This strategy can be particularly helpful if you have sold an asset during the year and realised a significant capital gain, as you may also be able to reduce the any personal income tax been payable on the capital gain.
Generally, this strategy can be implemented by the self-employed, retirees and employees whose employment ‘income’ is less than 10% of their total ‘income’.
Super Salary sacrifice involves an agreement between an employee and an employer to forgo a portion of salary in exchange for payment as a super contribution. The attraction of this strategy is ‘swapping’ a higher marginal tax rate for the concessional rate of 15% that is generally charged on super contributions.
If you’re due for a pay rise or an end-of-year bonus, you may be able to salary sacrifice this into super. Also if you are still within your concessional contributions cap (see important note below) you may be able to increase your salary sacrifice contributions to take full advantage of this concession.
Important note: the ‘concessional contributions cap’ limits the amount of concessional contributions (including salary sacrifice and personal deductible) before tax consequences may apply. The concessional contributions cap for 2013/14 is $25,000 if you are under 60, or $35,000 if you are 59 or older as at 30 June 2014.
Non-concessional contributions often called ‘after-tax’ contributions are another way to increase investments in the concessionally taxed super environment.
The non-concessional contributions cap is $150,000 (2013/14). However, if you are under age 65 at any time during the financial year, you can bring forward the next two years’ non-concessional contributions caps to allow larger contributions to be made (providing you haven’t already done so in the two previous financial years). The ‘bring-forward’ cap is $450,000 and is automatically triggered when your after-tax contributions are more than $150,000 (2013/14).
The non-concessional contributions and ‘bring-forward’ caps have been increased for 2014/15 to $180,000 and $540,000 respectively. A strategy of triggering the ‘bring forward’ in 2014/15 rather than this financial year may enable increased amounts to be contributed to superannuation over time. Timing of contributions including when to trigger the bring-forward is an important consideration to optimise contribution levels and avoid tax penalties.
Spouse contribution provisions allow taxpayers to make after tax super contributions to their spouse’s superannuation account. Advantages include:
A spouse tax offset worth up to $540 is available for a taxpayer who contributes for a spouse who earns less than $10,800. The offset reduces to nil when income reaches $13,800.
Spouse contributions splitting may help you and your spouse to accumulate more tax-effective wealth for retirement.
Generally, contributions splitting allows a member to split up to 85% of their employer and personal tax deductible super contributions made in the previous financial year to their spouse’s super. Splitting has a number of advantages including maximising superannuation withdrawals via two ‘low rate caps’.
Amounts up to the ‘low rate cap’ of $180,000 (2013/2014 & $185,000 2014/15) are included in assessable income but taxed at a zero rate of tax, so splitting contributions to a spouse’s account enables up to $360,000 to be withdrawn by a couple with zero tax payable on the withdrawal.
Source | OnePath
Direct Insurance v’s a Qualified Financial Adviser
/in Personal Risk Financial Advice /by Fil-BattistiIt’s a life full of choices, and today there are more than ever. But are you falling for the marketing hype? The fact is, on daytime television we are constantly bombarded with the option to call for quick and easy applications with no medicals. But what does that mean to you?
Poor Value for Money
The most important reason for not going directly to the insurance company is that most of the comprehensive life insurance policies on offer to the public are only available through Financial Advisers. Insurance companies leave it up to life insurance advisers to talk to the clients about the products, run through the applications and help them through the process. That’s one of the reasons that the products that are on offer when you go directly tend to be poor value for money.
Direct or industry funds generally offer basic cover, without as many extra benefits available. Financial Advisers have access to products that have a wider range of features that can be tailored to your own individual preference and budget.
Higher Premiums
The Life insurance companies that sell direct products ask very few medical and occupational questions. With little questions asked, the insurance company is not able to fully underwrite your policy. This leads to insurer’s making assumptions about your health and charging higher premiums than they should.
With no medicals, the direct insurer has no option other than to price higher in anticipation of risks unknown. Many direct insurers hide behind a clause stating that ‘claims due to pre-existing conditions are not valid’. On the other hand, products mostly recommended by an adviser will be fully underwritten at application stage allows you the peace of mind knowing that you are covered in full when a claim is made.
Standard Exclusions
Time poor individuals, or people who are uncomfortable with going through their entire medical history, are those who view the direct life insurance as a valid option. What they also don’t realise, besides a higher premium, is that there can be standard exclusions placed onto their policies.
There can be automatic exclusions for people with anything from mental health issues to diabetics. You may end up paying premiums for a product that doesn’t even cover you.
Cost
Direct cover is normally fully funded from your own cash flow, and often can be more expensive than a Financial Adviser sourced product. However, single premiums can often be cheaper (typically Group Life cover). An adviser can work with you, and look at ways of paying for your cover via superannuation, and using various linking options that reduce the overall cost to you.
Tax Effectiveness
Most direct insurance premiums, as they are funded from cash flow alone are only tax deductible for the income protection component. A Financial Adviser can show you how to pay for your insurance with multiple possible benefits depending on your circumstances.
Guarantee of payout
Direct insurance normally offers no guarantee that a payment will be made, as often these policies are underwritten at the time of claim. (See ‘Higher Premiums’ above).
Speed of implementation
With direct insurance, there is no doubt that it is quicker. There is a reason for that!
We will use your full financial profile to consider your actual needs and compare and match the products to your individual circumstances. The Adviser then needs to research solutions for you and prepare a report outlining these. Paperwork needs to be completed and a Statement of Advice has to be produced for your agreement and your application needs to be assessed by an underwriter. We ensure your policy goes into force as quickly and smoothly as possible, and we are there to ensure you have a hassle free process.
Management of claim
Besides the obvious disadvantages of dealing with insurance companies directly, Financial Advisers at AFD Financial Solutions do all the hard word for you AND we are there with and for you to manage your claim as required.
Addressing insurance needs of SMSF members
/in Personal Risk Financial Advice /by Fil-BattistiWhen the Cooper Review into superannuation was released in 2010, one of the most notable findings was that less than 13% of SMSFs had life insurance cover.
The review recommended that SMSF trustees be required to consider providing insurance for its members and documented the consideration as part of the fund’s investment strategy.
The SIS Regulations were amended in August 2012 to address this recommendation and took immediate effect. SMSF trustees must now consider whether the fund should hold insurance cover for one or more members of the fund and should be documented as part of the fund’s investment strategy.
However there is little guidance on what SMSF trustees need to do in order to meet this requirement. This article provides some insight into how this might be done.
What types of insurance can be considered?
The regulations don’t prescribe the type of insurance that must be considered by the trustee, but it is advisable that this should at least address needs for death, total and permanent disability (TPD) and income protection cover. Trustees are also currently permitted in certain circumstances to take other types of insurance cover such as own occupation TPD or trauma cover, although this will change from 1 July 2014.
What is critical is that the types of insurance considered need to be documented in the fund’s investment strategy.
Understanding the client
It’s critical that any advice provided reflects that there are in fact two clients – clients operating in their capacity as trustees of the SMSF and those same individuals in their capacity as members of the SMSF.
Recommending that an individual should have a particular type and level of cover and how it should be structured, either held personally or in the SMSF, is personal advice to the individual in their capacity as an SMSF member.
Advice in relation to the SMSF providing or not providing insurance or how this should be reflected in the investment strategy is personal advice to the individual in their capacity as trustee.
The advice provided to the client in their capacity as a member of the SMSF may assist the trustee in making its decision to provide or not provide insurance cover. Ultimately the decision to have insurance is one for the members of the SMSF.
Key considerations
All insurers provide a full features retail offering, but you should also consider whether a simplified solution which provides fast and easy access to the benefits of wholesale group insurance might be more beneficial.
There’s more than one insurance solution for SMSFs. To find out more contact your financial adviser.
Source | AIA