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Direct Insurance v’s a Qualified Financial Adviser

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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.   

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

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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

Importance of Insurance

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healthcare_medicine_cost_finance_dollar_iStock_000019024391MediumAs well as safeguarding your family’s financial future, insurance can lessen the financial blow of an unexpected tragedy.

 

 

 

Level vs stepped premiums

The choice of stepped or level premiums can have a large impact on the affordability of insurance over your lifetime. While stepped premiums are usually lower in the early years, level premiums can be more cost- effective, so it’s easier to hold insurance over a longer period.

Case study

Rob, non-smoker, takes out $1 million of life cover at age 35.

Age next Level premiums per Stepped premiums
birthday3665Total premiums over 29 years annum$906$8,016$84,835 per annum$600$27,250$196,745

*based on Asteron Life Complete life cover at 20 September 2013, white-collar professional, indexation rate of 3%

 

While the stepped premium is cheaper initially at $600 pa compared with level premiums of $900 pa, by age 65 the level premium is only $8,016 whereas the stepped premium is a whopping $27,250. Over 29 years, Rob can save $111,910 by choosing level over stepped premiums.

 

Insurance in super

Insurance in super is another strategy we can use to address affordability and cash flow concerns.

The cost of insurance through super may be more affordable compared to policies held outside super. The fund may be able to offer group rates, the fund can claim a tax deduction for the cost of insurance and this tax saving is generally passed to the member in the form of a reduced premium. Premiums can be funded from concessionally taxed super contributions. For these reasons, insuring in super can be more tax-effective than insuring outside super.

 

Summary

Cancelling insurance may be trading long-term security for short-term savings. A risk of dropping insurance is that it may be unavailable or more expensive if taken up again later.

 

The best defense against financial disaster is to stay covered so talk to us today to find out your best option.

 

Source I Asteron Life

 

 

 

Breast Cancer

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imagesGet Them Covered

October marked Breast Cancer awareness month around the world. Breast cancer is the most commonly diagnosed cancer among women in Australia, with 14,940 women predicted to be diagnosed with the disease in 2013, rising to 17,210 women in 2020. That’s an average of 330 women a week.

 

 

In the last five years, breast cancer has made up 50% of all of trauma insurance claims paid to women. And a high prevalence isn’t just observed for trauma. Breast cancer accounted for 20% of income protection claims, 18% of TPD claims and 15% of life and terminal illness claims.

 

Increasing age is one of the strongest risk factors for developing breast cancer, but it doesn’t just affect older people. Two out of three cases will be diagnosed in women aged 40-69, key ages for insurance coverage.

 

How can insurance help?

Trauma cover can provide a lump sum payment in the event of diagnosis. You can discuss with us how much cover is needed and you may include funds for treatment, supplementary income, reducing debt or even for a spouse to take time off work. Given the high chance of claim, trauma is the most expensive of the lump sum covers available.

 

Trauma insurance can cover breast cancer diagnosed at any stage. Definitions have evolved in the last few years to provide full claims to most women, even if they are diagnosed early, referred to as carcinoma in situ. Modern definitions should cover women who have a lumpectomy and follow up treatment like radiation or chemotherapy, rather than requiring more dramatic treatment to satisfy a claim at an early stage.

 

Keeping life going

Of course not all women will cease work. Australian women have an 89% chance of surviving more than five years after diagnosis. Certain income protection definitions and benefits can help provide support.

 

Cancer patients are one of the most likely groups of claimants to continue working through treatment. Finding a policy with a 10 hour definition will give them the flexibility to work up to 10 hours a week while undergoing treatment, without financial penalty. You may also look for a policy with a counselling benefit. While grief support is common on life cover, under income protection, this benefit gives access to support and comfort during a difficult and stressful time.

There are lots of considerations when choosing a policy for cancer coverage and sometimes it is impossible to be across all the benefits.

 

To find out how trauma insurance can help you, contact our office today!

 

1,3, 4. www.nbcf.org.au/Research/About-Breast-Cancer.aspx

2. Claims paid between 2009 and August 2013

Cover That’s Designed for Little & Big Kids

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CoverforKidzFor parents, there’s no greater pleasure than watching your kids grow into healthy happy adults.

Childhood is all about great experiences and big adventures. However, it’s not possible to prevent every childhood accident or serious disease. If, sadly, something were to happen to your children, how financially prepared would you be? It’s a conversation worth having.

 

BE READY TO LEND A HELPING HAND

A family with a seriously ill or injured child can face financial stress. Mounting medical bills and time off work to care for the child take their toll. That’s why understanding the benefits of child cover can help you get the right cover if something unforseen were to happen to your child.

 

WHAT TO LOOK FOR

Child cover offers can vary quite a bit between providers. It’s helpful to understand some of the key areas to look at when determining which cover best suits you.

 

Lump sum benefits can be as high as $200,000. Some providers include $10,000 in child cover premium-free for each eligible child as part of a lump sum or income protection policy, so this is worth investigating.

 

In addition, it’s important to look at the cut-off age for child cover, which isn’t necessarily just for little kids. Some providers make it available up to age 21 at which stage a lot of big kids have started driving and are going out without their parents. At this stage in life, children can be exposed to greater risks, increasing the possibility of injury through accidents.

 

If you move to another policy, including a spouse’s policy, consider if you can take your child cover with them. There are providers that allow fully-transferable child cover without the need for a re-assessment so kids can easily remain covered.

 

When a child grows out of child cover, you may want to continue covering your young adult children. To make it easier, often child cover can be converted to life cover, with linked or stand-alone trauma cover, without the need for any medical underwriting.

 

To find out more about child cover, talk to us today and see how we can help you further.

 

Source I Asteron