What are the 3 main types of life insurance?
Life insurance is a crucial component of financial planning, providing peace of mind and financial security for you and your loved ones. In Australia, there are three main types of life insurance: Term Life Insurance, Whole of Life Insurance, and Life Insurance via Superannuation.
Each type has its unique features, benefits, and considerations. In this blog, we will explore these three types in detail to help you make an informed decision about which one is best suited for your needs.
Term Life Insurance
What is Term Life Insurance?
Term life insurance is the most common type of life insurance available in Australia today. It provides coverage for a specified period, known as the "term." If the policyholder passes away during this term, a lump sum benefit is paid to the beneficiaries. This type of insurance is designed to provide financial protection for your loved ones in the event of your untimely death.
Key Features of Term Life Insurance
- Coverage Period: Term life insurance covers you for a set number of years or until you reach a certain age, whichever comes first. Common terms range from 5 to 15 years.
- Premiums: Premiums are generally level (fixed) during the term of the life cover.
- Flexibility: Many term life insurance policies offer the flexibility to adjust your coverage amount as your needs change. You can increase or decrease your coverage, subject to underwriting requirements.
- Renew-ability: Some term life policies are renewable, allowing you to extend your coverage without undergoing a new medical examination, although premiums may increase.
Benefits of Term Life Insurance
- Affordability: Term life insurance is more expensive initially than a policy with a 'stepped' premium under a 'whole of life' policy.
- Simplicity: The straightforward nature of term life insurance makes it easy to understand and manage.
- Financial Security: Provides a lump sum benefit to your beneficiaries, helping them cover expenses such as mortgage payments, education costs, and daily living expenses.
Considerations for Term Life Insurance:
- No Cash Value: Term life insurance does not accumulate cash value. If you outlive the term, the policy expires without any payout.
- Fixed Increases: Term life is offered under a 'fixed' premium - although there may still be some increases to the premiums whilst the policy is in place.
Whole of Life Insurance
What is Whole of Life Insurance?
Whole of life insurance, also known as permanent life insurance, provides coverage for the entire lifetime of the policyholder. Unlike term life insurance, whole of life insurance includes an investment component, which allows the policy to build cash value over time. However, it's important to note that whole of life insurance is no longer available for new policies in Australia. It was phased out in the early 1990s, but existing policies remain in force.
Key Features of Whole of Life Insurance
- Lifetime Coverage: Whole of life insurance covers you for your entire life, as long as premiums are paid.
- Guaranteed Death Benefit: A lump sum benefit is guaranteed to be paid to your beneficiaries upon your death as long as the policy is held in-force.
- Level Premiums: Premiums typically remain level throughout the life of the policy, providing predictability in your financial planning however increases to premiums still occur. Long term there may be significant savings from implementing a 'level' premium policy. Generally a younger a client is when they implement a 'level' policy the greater the long term savings.
Benefits of Whole of Life Insurance
- Permanent Coverage: Provides lifelong protection, ensuring your beneficiaries receive a payout if you pass away and the policy if in-force.
- Stable Premiums: Level premiums provide consistency and predictability in your budgeting.
Considerations for Whole of Life Insurance
- Higher Premiums: Whole of life insurance premiums are generally higher under a 'level' premium than term life insurance premiums due to the lifelong coverage. In contrast, Whole of life insurance premiums are generally lower initially under a 'stepped' premium than term life insurance premiums however may become more expensive as the premiums increase with age.
Life Insurance via Superannuation
What is Life Insurance via Superannuation?
Life insurance via superannuation is a type of life insurance that is offered through your superannuation fund. Superannuation is a retirement savings system in Australia, and many super funds include life insurance as part of their offerings. This type of insurance typically includes life cover (death benefit), total and permanent disability (TPD) cover, and income protection cover.
Key Features of Life Insurance via Superannuation
- Automatic Coverage: Many super funds automatically provide a default level of life insurance coverage when you join the fund. You can usually adjust the level of cover to suit your needs however the additional cover will require a full application with underwriting.
- Premiums Paid from Super Balance: Premiums for life insurance via superannuation are deducted from your superannuation account balance, rather than your take-home pay.
- Tax Advantages: Premiums paid from your superannuation account may have tax advantages, as they are generally paid from pre-tax contributions and tax deductible to your super fund.
- Beneficiary Nomination: You can nominate beneficiaries to receive the death benefit from your superannuation account.
Benefits of Life Insurance via Superannuation:
- Convenience: Automatic coverage and premiums deducted from your super balance make it easy to manage.
- Cost-Effective: Group insurance policies offered through super funds can be more cost-effective than individual policies.
- Tax Benefits: Potential tax advantages can make this type of insurance more affordable.
Considerations for Life Insurance via Superannuation
- Limited Coverage: Default coverage levels may be insufficient for your needs, requiring you to adjust the cover amount.
- Impact on Retirement Savings: Premiums deducted from your super balance reduce the amount available for your retirement savings.
- Complex Claims Process: The claims process for life insurance via superannuation can be more complex and time-consuming compared to individual policies or an underwritten policy.
Conclusion
Choosing the right type of life insurance is a critical decision that depends on your individual circumstances, financial goals, and preferences. Term life insurance offers affordable and straightforward coverage for a specified period, making it suitable for those seeking temporary protection. Whole of life insurance provides lifelong coverage, offering stability. Life insurance via superannuation offers convenience and potential tax benefits, but it may require adjustments to ensure adequate coverage.
Why Choose Morgan Insurance Advisors for Your Life Insurance Needs
At Morgan Insurance Advisors, we bring a wealth of specialised knowledge in the life insurance market. Our team of experienced advisors provides expert guidance tailored to your unique needs, ensuring you make informed decisions about your life insurance options.
We take the time to understand your individual financial situation and goals. By offering customised solutions, we ensure that your life insurance policy aligns perfectly with your needs and provides the best possible protection for you and your loved ones.
Our extensive network of insurance providers allows us to offer a variety of life insurance products. This means you have access to the best options and can choose the policy that suits you best.
Thanks to our strong relationships with insurance providers, we can often secure more favourable terms and rates than you might achieve on your own. Our negotiation skills ensure you get the best value for your policy.
Our commitment to you doesn't end once your policy is in place. We provide continuous support and advice, helping you manage your life insurance effectively over time. Whether you need to update your policy or have questions about your coverage, we're here to assist you every step of the way. Contact us today.
Professional Indemnity Insurance: What it Costs and Why You Need it as a Sole Trader
When running your business as a sole trader, it is important to insure yourself against anything that could bring financial harm to you and your business. Because you are legally the same entity, any business liability is your liability.
For most sole traders who provide services for clients, you could find yourself in the tough spot of having a client sue you for your service not delivering in the way they expected it to. This is where professional indemnity insurance would cover you.
Do I Need Professional Indemnity Insurance?
The chances are high that if you don’t think you need professional indemnity insurance, you most probably do. Don’t just think of how someone could make a claim against your business; think about the time, effort, and resources that drain your business when battling a claim like this. The loss that comes from having to pay the legal fees for the claim and the loss of business are enough to not just damage your business finances but your personal funds as well.
The professions that have a legal requirement in Australia for adequate professional indemnity insurance are:
- Accountants
- Architects and draftsmen
- Bookkeepers, BAS, and tax agents
- Electricians
- Financial Planners and mortgage brokers
- Plumbers
- Registered migration agents
- Real estate agents
While not a legal requirement for some, it is still an important insurance policy to consider for almost every business that provides advisement or services, including but definitely not limited to:
- Tradesmen (plumbers, electricians, builders, etc.)
- Personal trainers
- Massage therapists
- Tutors
- IT professionals
- Engineers
All of these sole traderships can benefit from having an indemnity insurance policy, especially if a client insists on lodging claims of negligence or malpractice. Insuring yourself with this policy means you are protecting you and your business from financial risks by covering costs for legal fees; it also covers any compensation paid to the client if a claim is successful.
How Much Does Professional Indemnity Insurance Cost for Sole Traders?
Just like a sole trader's business, no two insurance policies are the same. The cost of your policy can be influenced by a range of factors:
- Number of staff:Â If you are operating a sole tradership with employees, the number of people you employ can mean higher premiums.
- Staff turnover: Sole traders with a lower annual turnover means there is less risk for your business, meaning lower premiums. High turnovers mean more risk of claims made against you, so insurers charge higher premiums.
- Client type:Â The type of clients you deal with can also have an impact on your insurance premiums. The larger-scale the client, the higher the premiums compared to lower-end clientele.
- Industry: Some industries may have higher premiums than others because they carry a higher risk profile. For instance, an accountant would face much higher premiums than an artist.
- Additional benefits:Â As mentioned above, no two policies are the same. If you choose to include additional protections into your policy this will cost you more.
- Excess:Â An excess is what you pay if you ever have to lodge a claim. The higher your excess is, the lower your premiums will be.
- Previous claims:Â It is also a legal obligation in Australia to inform future insurers about past claims you may have made against any insurance policies.
Depending on all of the factors above, a thorough business evaluation is also done to evaluate any further risk factors relevant to the insurer. As a benchmark, professional indemnity insurance can range anywhere from $50 to over $200 AUD per month.
Why Choose Morgan Insurance Brokers?
When you choose to insure yourself with Morgan Insurance Brokers, you can rest assured knowing our specialist brokers compare policies from over 100 insurers, tailor making a comprehensive insurance plan specifically for your business.
Don’t wait until it’s too late, contact us today for a free quote and protect your business.
How to Protect Your Personal Assets as a Sole Trader
Oh no…your business is being sued. You’ve hit a rough patch and now you’re facing a lawsuit. As a sole trader, the stakes are incredibly high. You stand losing your personal savings, home, and ultimately your business. However, it doesn’t have to lead to that. With the right strategies in place, you can actually safeguard your business and hard-earned money. Here’s how you can do so– way before the unexpected happens.
5 Strategies to Protect Your Personal AssetsÂ
To preface, when you’re operating as a sole trader, your personal and business assets are not separate. This means you stand losing everything to your name if you’re facing a lawsuit.
Hence, a well structured asset protection strategy will help keep your personal assets free from risk if your business is being sued. It’s not a complicated process– here are five key strategies you can undertake.
- First, obtain relevant insurance coverage to your business operations. All businesses should have public and product liability insurance. These policies will safeguard you against financial losses as a result of lawsuits.
- Second, as sole trader you’re susceptible to liability due to the inherent structure of your business. So, a good rule of thumb would be to consider transitioning to a more protective business structure. For example, a company or a trust. They offer a higher degree of asset protection by separating your business from your personal assets.
- Third, consider shifting ownership of your personal assets to a trusted family member or anyone not directly involved in your business. This protects your business from general creditors if your business is sued. If a spouse or family member owns valuable assets used in your business, it’s important to register them on the Personal Property Securities Register (PPSR) to clarify ownership.
- Fourth, be sure to maintain clear and accurate financial records. This includes detailed records of all business transactions such as– expenses, personal and employee income, asset ownership, and more. In the unlikely event your business is sued, this documentation will help you demonstrate a clear separation of your personal and business assets.
- Fifth, always make sure to seek professional advice. A lawyer and/or an accountant with experience in asset protection will help you assess risks and develop appropriate mitigation strategies. Likewise, remember to stay informed about changes in specific laws and regulations. Regularly review and update your strategies to ensure compliance.
Is it Actually Possible to Completely Protect Your Personal Assets?Â
There is no black and white answer. While a multitude of strategies exist to protect personal assets as a sole trader, achieving complete protection is highly unlikely. There are several reasons as to why this is challenging.
- Sometimes, regardless of your business structure, creditors may require personal guarantees. These guarantees will expose your personal assets to risk.
- Unforeseen circumstances– like a pandemic or a sudden shift in legislation can create liabilities for you. Hence, as a sole trader, conduct due diligence by staying ahead of the changing regulatory requirements.
- Asset protection strategies are highly complex. One missed documentation can undermine its effectiveness.
- Under certain circumstances– like fraud or negligence, courts can still hold sole traders personal assets liable for business debts.
Need Help? Reach Out to Us
We’ve outlined a number of clear strategies you should consider implementing as a sole trader. As a sole trader, insurance policies you should consider include:
- Public Liability Insurance
- Workers Compensation Insurance
- Motor Vehicle Insurance
- Personal Accident/Income Protection Insurance
- Professional Indemnity InsuranceÂ
- Cyber Insurance
In the event you find yourself facing a lawsuit, reach out to your insurance broker immediately. First, your insurance broker will advocate for you; and second, it’ll ensure that your insurer extends indemnity. Moreover, they can also guide you through completing your claim promptly.
In specific circumstances, consulting with qualified professionals including lawyers, accountants, and your insurance broker will help you determine the best asset protection strategies for yourself.
At Morgan Insurance Brokers, our skilled team specialises in insurance policies for small to medium businesses. We’ll conduct extensive research into your business and guide you towards selecting the best insurance policies for yourself.
We understand that there is no one size fits all strategy when it comes to personal asset protection. However, with years of experience and over 150 insurers under our belt, we know how to help you minimise your risk.
Ready to partner with us? Contact us today for a free consultation. Let us help you determine the best ways to safeguard yourself.
What Do Finance Brokers Do?
What Do Finance Brokers Do?
A question that we get asked all the time!
Finance brokers hold a vital position within the financial sector, serving as the bridge between clients and financial institutions.
Their primary role is to assist both individuals and businesses in identifying and obtaining the most suitable financial products, such as loans, mortgages. By utilising their specialised knowledge and broad network of lenders, finance brokers provide personalised advice, streamline the often complex application processes, and frequently secure more favourable terms and interest rates than clients might be able to achieve independently.
This not only saves clients significant time and effort but also makes navigating the intricate landscape of finance much more straightforward and approachable.
Role and Responsibilities of Finance Brokers
Finance brokers have a range of key responsibilities that ensure they provide valuable services to their clients. These include:
Assessing Clients' Needs:
The adventure begins with getting to know the clients inside out! Finance brokers dive deep into understanding their clients' financial situations, goals, and requirements. This involves gathering detailed information about their income, expenses, assets, liabilities, and future financial plans. It's like piecing together a financial puzzle!
Researching Financial Products:
With a clear picture of their clients' needs, brokers embark on a treasure hunt for the best financial products available in the market. They evaluate different options from multiple lenders, considering factors like interest rates, terms, fees, and features. The goal? To find the perfect match that aligns with their clients' objectives.
Providing Tailored Advice:
Facilitating Loan Applications:
When it's time to secure that perfect financial product, brokers step in to assist with the loan application process. This includes gathering necessary documentation, completing application forms, and ensuring all required information is accurately provided. They also liaise with lenders on behalf of their clients to streamline the approval process, making it as smooth as possible.
Maintaining Client Relationships:
Building and maintaining strong relationships with clients is at the heart of what finance brokers do. They provide ongoing support and advice, helping clients manage their finances effectively over time. This includes regular check-ins, updates on new financial products, and assistance with any future financial needs. It's all about being a reliable partner on their clients' financial journeys.
The Process of Working with a Finance Broker
Initial Consultation:
The journey kicks off with an exciting and crucial first step—a discussion where the finance broker dives deep into understanding the client's financial needs. This involves a thorough discussion about income, expenses, assets, liabilities, and future plans. The broker uses this vital information to grasp what the client aims to achieve and how best to assist them in reaching their financial goals.
Research and Comparison of Financial Products:
Armed with the client's detailed information, the broker embarks on an intensive research mission. They meticulously compare various financial products available in the market, evaluating options from multiple lenders. Factors such as interest rates, terms, fees, and features are scrutinised to find the most suitable products that align perfectly with the client's needs and financial objectives.
Application Process:
Once the ideal financial product is identified, the broker steps in to assist the client in preparing and submitting the loan application. This includes gathering all necessary documentation, completing application forms, and ensuring every detail is accurately provided. The broker also liaises with the lender on behalf of the client, streamlining the process and addressing any queries or issues that may arise, ensuring a smooth and efficient application journey.
Approval and Settlement:
After the application is submitted, the broker diligently follows up with the lender to ensure a seamless approval process. They keep the client informed of the progress and any additional requirements. Once the loan is approved, the broker helps with the settlement process, ensuring all conditions are met and the funds are disbursed as needed. This critical phase is handled with precision and care, ensuring everything falls into place perfectly.
Ongoing Support:
The relationship with a finance broker doesn't end with the settlement—it's just the beginning! Brokers provide ongoing support and advice, helping clients manage their finances effectively over time. This includes regular check-ins, updates on new financial products, and assistance with any future financial needs. The broker remains a valuable resource for clients, offering continuous guidance and support, ensuring they stay on track to achieve their financial goals.
Regulatory Environment and Qualifications
Regulatory Bodies:
In Australia, finance brokers are governed by the Australian Securities and Investments Commission (ASIC). This regulatory body ensures that brokers adhere to stringent standards and practices, maintaining the integrity and reliability of the financial services industry.
Licensing Requirements:
To operate legally, finance brokers must obtain an Australian Credit Licence (ACL). This licensing requirement ensures that brokers possess the necessary qualifications and comply with all regulatory standards, safeguarding the interests of their clients.
Professional Associations:
Many finance brokers are affiliated with professional associations such as the Finance Brokers Association of Australia (FBAA) and the Mortgage & Finance Association of Australia (MFAA). These associations provide additional oversight, support, and resources, helping brokers maintain high professional standards.
Educational Qualifications:
Finance brokers typically hold relevant qualifications, such as a Certificate IV in Finance and Mortgage Broking or a Diploma of Finance and Mortgage Broking Management. These educational credentials equip brokers with the essential knowledge and skills required to offer professional and informed financial advice to their clients.
Benefits of Using a Finance Broker
Expertise:
Imagine having a financial wizard by your side! Finance brokers bring a treasure trove of specialised knowledge about the financial market. They provide expert advice tailored to your unique needs, helping you navigate the complexities of financial products with confidence and ease.
Time-Saving:
Say goodbye to endless hours of research and paperwork! Finance brokers handle all the heavy lifting, from comparing products to negotiating terms. This means you can focus on what truly matters in your life or business, while they work their magic behind the scenes.
Access to a Wide Range of Products:
Unlock a world of possibilities! Brokers have access to an extensive network of lenders and financial institutions, offering you a large range of options that you might not even know existed. It's like having a VIP pass to the best financial deals out there.
Personalised Experience:
Experience the luxury of personalised service! Finance brokers take the time to understand your unique financial situation and goals. They craft customised solutions that perfectly align with your needs, ensuring you get the best possible outcomes.
Negotiation Power:
Get ready to score amazing deals! Thanks to their strong relationships with lenders and top-notch negotiation skills, brokers often secure more favourable terms and interest rates than you could achieve on your own. It's like having a seasoned negotiator fighting for your best interests.
Partner with Morgan Finance today and experience the difference expert guidance can make. Contact us now to get started on your path to financial success!Â
Should You Insure Inside or Outside Your Superannuation?
Life is unpredictable. Unexpected events can have significant financial consequences for both you and your family. This is why insurance is such an important thing to consider. The chances are high that you are already insured. Most superannuation funds automatically sign their clients into insurance policies, with as many as 10 million working Australians having insurance through their superannuation funds.
When deciding which insurance policy works best for you, you should consider important things like a family dependant, debts you may have, and your current lifestyle. Insuring inside your super fund or with individual retail insurers via your super offers a range of benefits and disadvantages and should be carefully considered.
Get a QuoteWhat types of insurance do superannuation funds offer?
There are three kinds of insurance policies offered through your super funds:
- Life (or death) insurance:Â Beneficiaries receive a lump sum payment if you die.
- Income protection:Â In case of temporary illness or disability, this ensures you receive income over a specified period of time.
- Total and permanent disability (TPD) insurance:Â if you are unable to work again due to a serious disability, you may receive a lump sum payment.
There are only a few reasons why you may not automatically have insurance coverage through your superannuation. This can be because:
- You are under 25 (unless working in a dangerous job or made a voluntary choice to opt-out of insurance coverage).
- You have less than $6,000 in your superannuation account or your account was inactive and your insurance was cancelled.
Once these thresholds have been met, your superannuation account will automatically apply or offer you insurance coverage. You can check if you have insurance through your super account, your annual superannuation statement, or by contacting your superannuation fund directly.
Why not insure through your superannuation?
There are benefits to funding your insurance via your superannuation, such as:
- Superannuation funds may have lower premiums because of their access to group policies, making them cost-efficient.
- Contributions to your super fund are taxed at a lower threshold of 15%, meaning your paying for insurance with pre-tax or tax efficient super assets.
- Paying insurance premiums through your superannuation means better cash flow management and no out-of-pocket expenses from your disposable income.
- Default insurance policies almost always come with automatic acceptance, so there is rarely ever a need to get a medical check or answer health questions to secure coverage; this can be advantageous to some clients.
Default insurance cover via superannuation.
Though these benefits may seem good to most people, and incredibly convenient, there are a much longer list of disadvantages to insuring inside your super fund:
- Lack of customisation for default insurance benefits:Â There is much less customisation for your default insurance coverage because the policies are generalised to suit a variety of people. This means that more specialised retail insurance coverage that might benefit you more is unavailable to you.
- Default Insurance premiums aren’t always cheaper: While some default super fund insurance policies might be less expensive, there may be things that affect your premiums that are outside of your control. This is often because super funds have bulk rates through their insurers, or there is an increase in the number of claims being lodged. For example, young members and non-smokers end up with steeper premiums because of the increase in claims from smokers and elderly people.
- Life insurance benefits expire quicker inside super funds:Â Generally, default Life insurance policies within your super reduce automatically as you get older and expire once you reach the age of 65-70. In comparison, retail cover can continue to age 99.
Why You Should Insure with Retail Insurance
- Retail insurance can be funded from your Super also:Â As with default insurance any new retail insurance can be funded from your current super policy. There is no requirement to change super funds. The premiums are funded as an annual rollover from your super to your insurance policy.
- More coverage options for flexibility and customisation:Â When insuring with a retail insurance provider, your policies become much more customisable. With individual insurance policies can come additional coverages like trauma cover, reduced waiting period for benefits payments, and Own occupation disability cover.
- Retail insurance policies are renewable:Â Default insurance contract terms are constantly renegotiated between the insurer and the superannuation provider, which can reduce your benefits. In comparison, retail insurers will never downgrade your benefits once your policy is in place and you have an enforceable contract in place between you and the retail insurer. For example, while your default insurance in your super fund might reduce your insurance benefits as you age, your retail insurance policy will always remain the same until you request to reduce or cancel your cover.
Insure With Morgan Insurance Brokers
If you are thinking of moving away from your super fund default insurance provider, we can help.
At Morgan Insurance Brokers, we know insurance like the back of our hands. After a free, no-strings consultation, we work with you to create the best insurance coverage for your situation and lifestyle.
Contact us today and start your insurance journey the right way!
Get a Quote
Disadvantages of Default Life Insurance Through Superannuation
Did you know that you might be automatically insured through your superannuation fund? Whether you realise it or not, some super funds are required to sign you up for insurance, even going so far as to take money out of your super fund to pay for it. In 2021, ASIC estimated there were almost 10 million superannuation accounts with insurance included.
While there are some benefits to insuring through super – no requirement to complete an application– this doesn’t mean it is a good thing. In fact, there are quite a few disadvantages to having default insurance through your superannuation fund, and the best thing is that it is not compulsory! You can cancel your deafult super fund insurance anytime.
What insurance can you get through superannuation?
There are typically three kinds of insurance offered through your super. These are:
- Life (or death) insurance:Â This provides beneficiaries with a lump sum payment in case of death.
- Income protection:Â This provides a source of income if you are unable to work due to temporary illness or injury.
- Total and permanent disability (TPD) insurance:Â This provides a lump sum payment if you become seriously disabled and are unable to work again.
How do you know if you are insured through your superannuation?
There are generally a few guidelines surrounding your superannuation insurance. If you are under 25 and have less than $6,000 in your superannuation account, you won’t be automatically covered by insurance unless you work in a dangerous job or decide to opt-in for it. Once you have met these criteria and receive employer contributions, you are likely insured.
If you aren’t sure whether or not you are insured through your super fund, there will be proof of insurance through your super fund’s annual statement. Alternatively, there will be information about your insurance through your super account. If you still can’t find it, give your super fund a call and ask directly.
What are the disadvantages of default life insurance through superannuation?
- Default life insurance is usually inadequate for most people
APRA/ASIC came out with claims statistics in 2023 that proved just how different the coverage is for insurance inside and outside of super. The average claim for life insurance policies outside of super was $509,000 compared to super fund insurance policy payouts, which sat at around $135,000. This shows just how drastically different insurance policies inside and outside super funds are.
On top of that, some super fund insurance policies have a fixed premium but the amount you are insured for changes. As you age and the likelihood of making a claim increases, your super funds insurance policy lets you down right when you need it by reducing the amount of money you can claim.
When you have an underwritten retail insurance contract, your cover will not be reduced unless you specifically request this. Some policies also offer the option to increase your level of cover without needing medical checks.
- Claims payments made through super funds can be much slower
When insured through super default the claims process is usually slower when compared to a retail policy. If you have not nominated a valid beneficiary for your Life insurance, the insurer pays the trustee of your super account, and they may be left with whom your insurance will be paid to. Regarding ‘Total and Permanent Disability Cover’ and ‘Income Protection’ The trustee is left to decide if the ‘Super conditions of release’ have been met before a successful claim is paid.
- Tax may be payable on insurance benefits under super funds
A payment from an insurer outside of a super fund is usually 100% tax free. This is not always the case for insurance inside super funds depending on whether Life insurance is paid to a valid tax dependant beneficiary – for example a child under 18, a spouse or a person with which the life insured has an interdependency relationship.
Taxing your life insurance benefits largely depends on who is receiving the payment. If the beneficiary is not considered to be financially dependent (i.e. a non-dependent child aged over 18 or other non-financially dependent persons), they could pay as much as 32% in tax for the taxable component.
Tax may be applied on ‘Total and Permanent Disability’ proceeds if the proceeds are withdrawn from super before retirement age or age 60 years. Below that age of 60 the tax payable is determined by your super eligible service date. Tax of up to 22% may be payable including a portion which will be tax free.
- Insurance premiums get taken directly from your retirement balances
Arguably the most important point to make is that your insurance premiums get taken directly from your retirement funds when you insure through your super account.
While it may be appealing and convenient to pay through your super so you don’t lose any money out-of-pocket, you may consider making additional contributions to your super to boost your super and replace any additional insurance premiums.
Still Unsure? We Can Help
Are you unsure about keeping your default insurance with your superannuation?
When you insure through Morgan Insurance Brokers, we make sure you get the best life insurance for you. We have a discussion where we learn about your needs and then develop a tailor-made plan with comprehensive coverage at the most competitive premiums.
Contact us for a free, no-strings consultation and safeguard your future.
The Downsides of Super-Based Income Protection in Australia
Sometimes life surprises us in completely unexpected ways. Whether it’s a sudden illness, job loss, or an unforeseen expense, it’s important to always have the right safety net in place. Insurance– like income protection insurance can provide you peace of mind by equipping you with sufficient financial support when life suddenly decides to throw you a curveball.
At present, within Australia, there are two separate ways of obtaining income protection insurance– either through your superannuation fund or by purchasing a standalone policy directly from a private insurer. While the majority of Australians choose solely to rely on income protection cover through their superannuation, it poses a crucial question: is it sufficient?
Automatic Income Protection Through Super
When you sign up for a superannuation fund, you automatically gain access to life insurance and total permanent disability (TPD) insurance. Additionally, some super funds will also provide you with income protection insurance. This is designed to replace your income based on your annual earnings in the twelve months prior to your unforeseen injury or illness.
Income protection insurance may cover up to 85% of your pre-tax income including super guarantee. The income protection offered through a super fund may differ fund to fund.
Retail Income Protection
Typically known as retail insurance policies, income protection insurance outside of super, or inside super (paid from your super), is usually a lot more customisable. Several notable features of retail income protection insurance include:
- You can tailor your policy to meet your individual needs. For instance, you can choose your benefit period, waiting period, and coverage amount to align with your specific circumstances.
- A retail insurance policy may offer a higher coverage limit compared to the coverage offered by the default cover in a super fund. For instance, some super funds might only offer a maximum default benefit of $2000 a month, which might be nowhere close to your actual income.
- Premiums for retail income protection policies held personally are tax-deductable. This means the overall cost of your policy may be much lower after tax.
- Retail insurance policies are renewable (outside or inside super). This means your insurer will not be allowed to change the terms of your policy once your policy is in place.
- Retail insurance usually offers extra features such as world-wide cover and benefits such as supplementing rehabilitation costs (up to 12 x times your monthly sum insured).
Drawbacks of Default Income Protection Insurance through Super
While default income protection insurance through your superannuation fund tends to be the what many people have in place, there are several drawbacks you should consider as follows:
- Income protection insurance through your super usually leads to an erosion of your retirement savings. This is because your insurance premiums are directly deducted from your super balance.
- Default coverage is usually quite limited. This means it might not adequately protect your income. Likewise, if you were to update your cover through your super fund, it might end up being a lot more expensive than purchasing a retail insurance policy.
- If you– change super funds, stop contributing to your fund, have a low balance, or an inactive account, your income protection insurance through super may be cancelled.
- Superannuation funds can change their insurance terms and conditions at any time. This means it might become harder for you to claim coverage or you might experience significant pay-out reductions.
- The benefit periods for default income protection policies through super may have limitations. Hence, it may not provide you with long-term financial security.
- Income protection insurance through super is not tax deductible. This is because your super fund is the policy owner.
- Claims processing times are much slower. The claim goes through several decision making stages, ultimately resulting in delays.
- You may need to meet very specific conditions to be eligible for a claim. Certain policies cease to offer coverage if you’re unemployed or take unpaid leave.
- There may be additional ‘total days disability periods’ within the waiting periods which must be satisfied before a successful claim can be made. Retail policies typically have more favorable policy terms than cover offered as part of a default or super insurance offering.
Why Choose Morgan Insurance Brokers
It’s important to note that policies may vary depending on the type of income protection insurance you choose to invest in. It is important to know what you’re covered for when deciding on the right type of income protection insurance for yourself. While income protection insurance through your super fund is a convenient option, there are several drawbacks to consider.
Need help comparing your options? At Morgan Insurance Brokers, income protection insurance is one of our core services. We understand just how crucial it is to safeguard yourself during rainy days.
Our team will help you secure the ideal coverage you need to meet your needs. Our brokers will guide you towards finding your perfect fit.
What Do Insurance Brokers Do?
Introduction: Brief Overview of the Insurance Industry
The insurance industry is a key part of our financial system, offering protection against various risks. It includes different types of insurance like life, health, property, and liability insurance, all designed to protect people and businesses from financial losses.
Insurance works by pooling risk. This means that the premiums paid by policyholders are used to cover the losses of those who make claims. This system provides financial security and helps keep the economy stable by allowing businesses to operate confidently and individuals to plan for the future.
The industry is heavily regulated to ensure fairness and transparency. The three regulatory bodies for the insurance industry are Australian Prudential Regulatory Authority (APRA), Australian Securities and Investments Commission (ASIC), and Australian Competition and Consumer Commission (ACCC) and they oversee insurance companies to protect consumers and maintain trust.
Importance of Insurance for Individuals
Insurance is vital for individuals because it provides a financial safety net against unexpected events. For example, income protection insurance ensures you're able to afford your lifestyle if you're unable to work because of a sickness or injury, while home and car insurance protect your valuable assets from damage or loss. Life insurance offers financial support to your loved ones in the event of your death, helping them manage expenses and maintain their standard of living. Overall, insurance gives individuals peace of mind, knowing they are protected against various risks.
Importance of Insurance for Businesses
For businesses, insurance is crucial for managing risks and ensuring continuity. It helps cover significant losses from events like property damage, public liability claims, and employee injuries, which could otherwise lead to financial ruin. Many types of insurance, such as workers' compensation and public liability insurance, are legally required, ensuring compliance with regulations.
What is an Insurance Broker?
An insurance broker is a professional who acts as an intermediary between clients and insurance companies. Insurance Brokers work independently to find the best insurance policies for their clients' needs. They provide expert advice, help clients understand their options, and assist in securing the most suitable coverage.
Types of Insurance Brokers
Personal Insurance Brokers:
Specialise in insurance products for individuals, such as life insurance, income protection insurance, TPD, Trauma and Keyperson Insurance. They help clients find policies that protect them personally.
General Insurance Brokers:
Caters to the insurance needs of both businesses and individuals. This includes coverage for property (whether commercial or domestic), commercial or private use vehicles, public liability, workers' compensation, and other types of commercial insurance. General insurance brokers play a crucial role in helping clients manage risks and protect their assets effectively.
Key Responsibilities of an Insurance Broker
So what does an Insurance Broker Do? Insurance brokers have several key responsibilities, including consulting with clients to understand their insurance needs, researching and comparing policies, negotiating terms and premiums, and assisting clients with claims to ensure they receive fair settlements.
Morgan Insurance has a 10 step approach to every new client that they assist - we call it our 10 Step Action Plan which includes:
- Initial Contact: Respond promptly to our client queries within minutes or the hour of the initial request.
- Client Consultation: Meet with the client to understand their specific requirements, financial situation, and risk profile; alternatively, we can meet over the phone.
- Needs Assessment: Conduct a thorough assessment of the client's current insurance coverage and identify any gaps or additional needs.
- Market Research: Research various insurance policies from different providers to find the best options that meet the client's needs.
- Policy Comparison: Compare the features, benefits, and costs of the shortlisted policies, highlighting the pros and cons of each.
- Negotiation: Negotiate with the insurance companies to secure the best possible terms and premiums for the client.
- Recommendation: Present our clientgs with a detailed report of the best policy options, providing professional advice on the most suitable choice.
- Policy Selection: Assist the client in selecting the preferred insurance policy and completing the necessary application forms.
- Policy Issuance: Ensure the policy is issued correctly and all documentation is provided to the client.
- Ongoing Support: Provide continuous support to the client, including policy reviews, updates, and assistance with any claims or queries.
What are the benefits of insurance an insurance Broker?
Insurance brokers provide expert advice, save you time by handling research and paperwork, and offer access to a wide range of insurance options to ensure you get the best coverage at the best price.
How to choose the right Insurance Broker?
To select the right insurance broker, start by verifying their credentials and licenses. Next, evaluate their experience in the specific type of insurance you require. Take the time to read reviews and testimonials from other clients. These firsthand accounts can provide valuable insights into the broker's reliability, professionalism, and overall service quality. Look for patterns in the feedback, such as consistent praise for their responsiveness and expertise, or any recurring issues that might be red flags. This will help you make a more informed decision and choose a broker who is well-regarded and trustworthy.
Conculsion
In conclusion, insurance brokers play a vital role in helping clients navigate the complex world of insurance. They provide expert advice, save you time by handling research and paperwork, and offer access to a wide range of insurance options to ensure you get the best coverage at the best price. By understanding their key responsibilities and the benefits they offer, you can make an informed decision when choosing the right broker for your needs.
If you're looking for personalised and professional assistance with your insurance needs, don't hesitate to reach our to us today.
