Protection strategies, tactics and products to protect you, your family and your income includes life insurance

Why DisabilityCare is no replacement for life insurance

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

[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

Direct Insurance v’s a Qualified Financial Adviser

imagesAre you looking into life insurance for the first time? Not sure if you should go to companies directly or use a Financial Adviser?

It’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
  • Higher Premiums
  • Standard Exclusions
  • Cost
  • Tax Effectiveness
  • Guarantee of payout
  • Speed of implementation
  • Management of claim

 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.   


 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

imagesAddressing insurance needs of SMSF members

When 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

  1. The investment strategy must demonstrate that the trustee has considered providing insurance to members. This should include how the trustees intend to deal with insurance and reflect what insurance if any, the trustees have put in place. This may also include incorporating any personal member advice as rationale for the trustees’ decision to provide (or not provide) insurance. 
  2. Make sure that the governing rules of the SMSF allow the trustees to hold insurance for fund members. Beware of any rules that may limit the type of insurance which can be offered, e.g. restricting the term of income protection to two years. Consider any implications about the types of insurance events that the trustee can provide from 1 July 2014 and possible changes to the governing rules.
  3. Spell out the purpose for which the insurance has been acquired and how the proceeds are to be used. For example, where an SMSF has borrowed to purchase business real property, the primary reason may be to retire debt rather than add to a member’s death or TPD benefit.

 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

You can afford Life Insurance!

YouCanAffordSuperIn 2010, a study by Lifewise found that 95% of families didn’t have adequate levels of insurance. The typical Australian family will need to cope on half or less of their income as a result of underinsurance.

Understanding their finances are one of the main reasons Australians fail to protect themselves and their families. Here is how you can afford the premiums:



Did you know that you can pay your insurance premiums through your super? This may assist you with paying insurance premiums when you have a low disposable income.


You can make contributions to your super fund and gain tax benefits:

•             If you’re eligible to salary sacrifice to super, you can have premiums paid from pre-tax dollars. And because your super fund may be able to claim a tax deduction for the premiums, you may not need to pay tax on the contributions.

•             If you’re self-employed, making a personal contribution to super from after-tax income to cover premiums lets you claim a personal tax deduction.


•             Take advantage of tax offsets of up to $540 by making a super contribution to your low-income spouse.

•             Make personal contributions to super, and if eligible, qualify for a Government co-contribution of up to $500.


•             A benefit payment under superannuation is paid to the fund trustee.

The trustee will only pay benefits to you or your beneficiaries if you meet a superannuation condition of release.

•             Tax on death benefits is determined by who receives the benefits. You may need to ensure a binding death nomination is in place so that benefits are paid to those intended.

• Paying premiums from superannuation may erode your retirement funds so think about topping up your superannuation fund when you are able.


To take the first step to getting the right cover for you- call Fil today


Source IAIA

Helping children buy a home while protecting parent’s interests


Gift-from-Mum-and-DadAs reported in the media at the end of January, Cate Blanchett and her husband recently bought a waterfront investment property for nearly $2 million, apparently as an investment for their three sons.



This is indicative of the trend of parents wanting to help their children get a start in life, particularly since the Australian property market is so hard to break into. The desire to help is further intensified if there are grandchildren on the way. A 2012 survey of Australians aged 50 and over revealed that parents give $22 billion a year to their adult children to help them get established, buy property and tide them over during tough times.” This is all well and good, but what are some of the issues that these benevolent parents should consider?

Gift, loan or other?

One way to help adult children buy a home is providing them with money to help with a deposit. The gift may be given directly or contributed to a First Home Saver Account, a tax-effective way to save for a home. The problem with gifting is that the money is not protected in the event your child is married or in a relationship, and your child and partner then separate or divorce. In the event of a relationship breakdown, the gift becomes part of the joint assets of the relationship. Another issue with gifting is where parents intend to receive the age pension within the next five years. Any asset or amount over or above $10,000 gifted by a single person or couple in a single financial year or above $30,000 over a five year rolling period impacts on parents’ pension entitlements for five years.

A better way to provide support and to protect parents’ interests is through a written loan agreement. Even though children may view this as an expression of distrust, a written agreement would give all parties certainty about what has been agreed and what is expected of everyone. It would show the family that they are serious about repaying the loan. A loan agreement would ensure that the parents’ rights are protected in the event a child’s relationship with his or her spouse or partner broke down. It would also be helpful in preventing sibling jealousy with respect to parents’ assets and future inheritances.

Another option is for parents to provide guarantor support for their children by providing either the parents’ home or term deposits as security. Financial institutions offer a variety of options. The Commonwealth Bank has a facility called Guarantor Support, which would enable a child – through parental support – to borrow more funds than they could otherwise or purchase the property that they want rather than having to settle for a cheaper alternative.

Finally, parents could consider buying the property jointly with their children, but this would mean the parents would have their names on the title deeds. For both guarantor support and joint ownership of property, parents need to be aware that they are fully liable for their child’s loan obligations.

As further protection, parents who gift or lend money can insist that their child and spouse or partner enter into a binding financial agreement to ensure that the gift or loan is repaid if the relationship fails. These agreements can be made either before or during a marriage or de facto relationship.

Parents should always obtain specialist legal and taxation advice when setting up a loan for their children.

That said, here are some options to consider:

•    Should the loan be on interest free or commercial terms? Generally speaking, the more commercial the terms of the loan, the more likely the courts will be to view the loan as neither an asset of a relationship between a child and spouse/partner nor a financial resource of the child. The child should make repayments of the loan principal or pay interest at least annually.

•     If interest is charged, will it be fixed or variable or pegged to a bank interest rate?

•     Should the loan be open ended or does it need to be repaid within a certain time frame?

•     Should parents request security over the debt, even through the agreement is classed as a personal debt?

On the last point, one practical form of security is a caveat over the property. A caveat simply provides notice that a person claims a particular unregistered interest in the property, but it is not as powerful as a mortgage, which creates official rights over the property. In a bankruptcy context, failing to take security over the child’s assets may mean that other creditors get paid before the parent.

The importance of life insurance

Regardless of the way parents decide to financially help their children purchase a home, life insurance on the lives of children and even their partners should be considered. If illness, injury, or even death were to happen to an adult child who had just purchased home, it would be quite likely that the child – even one with a spouse or partner – would have trouble meeting mortgage repayments and could possibly even lose the home. The consequences would be compounded by the fact that the parents have provided funding, one way or another, with a potential impact on their retirement plans.

However, given that the child has just spent all his or her savings on the home purchase and associated costs, life insurance affordability would be an issue. Given this minimal cash flow, parents can also assist in this area, particularly as this would protect both themselves and their children. With lump sum covers (term life, TPD and trauma cover), the easiest way to do this is to set up a non-super (ordinary) life policy owned by the parents on the life of the child. This ownership structure would satisfy CGT exemptions under section 118-300 ITAA97 for term life (as the parents would be the original beneficial owners of the policy) and section 118-37 ITAA97 for TPD and trauma. These exemptions would also apply for cover over the life of the child’s spouse or de facto partner, so all lump-sum insurance proceeds would be tax free to the parents.

The good news is that given the age of the children, insurance premiums should be relatively low. The level of cover should at least be the amount of the loan or gift, so that the parents would not have a shortfall if an insurable event occurs. Income protection for the child should also be considered. This must be owned by the child to ensure that a tax deduction can be claimed, but of course the parents could also help out financially. Once the loan is repaid, the parents have the option of transferring the insurance cover to their adult children, so they could assume premium payments.


Most parents naturally want to help their children get started in life, and often provide a gift or a loan to help with a home deposit. The benefit of a properly documented loan is that it protects family finances in the event of an adult child’s relationship breakdown.

Life insurance on the adult children should be considered in order to protect the asset and parental financial support. The initial premiums can be paid by the parents and are relatively affordable given the age of the lives insured.

Source:  CommInsure