LIFE INSURANCE TO PROTECT YOUR SPOUSE, CHILDREN……. and PARENTS

For over three decades, we have been providing advice about building and protecting the wealth of our clients.  One of our client service offerings is a “family tree” discussion.  On the surface, this discussion addresses the correct transfer of wealth to beneficiaries.  Following the tree imagery, this is the money transferring from the top of the tree down into the branches, or family members.

In this article we want to explore what happens when money flows in the opposite direction, from the bottom branches and works it’s way up to the top of the tree.  This can be a devastating destroyer of wealth that is often triggered by sudden events that are full of emotion.  It can have as much impact upon a client’s retirement as a bad investment decision or an economic downturn.

We often hear of situations where one child suffers from an addiction or illness and grandparents suddenly becoming full time carers for their grandchildren.  Other times, it will be providing financial support for one child who repeatedly makes bad financial decisions and always needs to be bailed out.  Sometimes it might be a child applying emotional pressure on a parent to become guarantor on a home loan or to supply a lump sum for a home loan deposit.    Some of these situations can be avoided others cannot, but they are obvious examples of people placing financial strain on their extended family members and parents.

However, what we often do not hear about is the less obvious which was highlighted when a client contacted Income Solutions to make a withdrawal from their retirement savings.  Their son’s wife had died unexpectedly.  The son and his wife had a mortgage and three small children.  Their son was a stay at home father and as a result, there was no income coming into the family now.  Upon investigation, it was discovered that the son had a medical condition making it unlikely he would be able to secure work.  The son’s income needs therefore extend beyond the time frame of caring for young children and expanded to the full term of his working life.  The daughter in law had earnt an above average salary and was on a steady career projectory, allowing the family to enjoy a comfortable lifestyle.  This had provided our clients with the illusion that their son and his family were financially secure.  As it turns out, the son did not have any significant savings and as a family they had never put in place any additional protection cover.  Their theory was that they would put every spare cent they had into reducing their mortgage and they did not want to be paying money on insurance premiums they’d likely never need.  The wife had a small amount of life insurance held within her employer super fund, based at the default amount of cover for her age, and a modest account balance held within the employer super account.  This was enough to partially pay down the mortgage, leaving a much smaller debt but no ongoing income support for the surviving husband to pay down the remaining balance, let alone cover the family living costs. 

Retired parents should consider asking about the financial protections adult children have put in place for themselves.  This is especially relevant when they have a young family of their own.  Often pride dictates an answer “my son is doing really well, he’ll have that sorted”.  Other times, our clients don’t know, haven’t thought to have the conversation with their children or feel they are over-stepping the mark if they ask their children about their finances.   Our client in this example fell into the “doing well and will have that sorted” category when we asked about their children’s personal protections.  It is not our place to take things further and that’s where it lay. 

The one thing that is commonplace amongst all parents we see is that they love their children and grandchildren.   Of course, our client stepped up to help their child in need.  The result is that our client has steadily withdrawn funds to improve their son’s situation.  The issues that stem from this one, unexpected event are many:

  • Our clients were just on target to meet their financial retirement goals.  They no longer are on target and needed to reduce their personal spending accordingly.  Their living costs have risen however, because they are no longer just supporting themselves but are also buying necessities for their grandchildren, such as new clothes and covering costs for school excursions. 
  • Our client’s lifestyle goals in retirement are now changed because they need to provide additional help to their son and his young children.  They love all of their grandchildren equally and it ways heavily upon them that they have limited time available to spend with their grandchildren from their other children. 
  • Our clients have 5 children in total and always intended to distribute their estate equally between all 5.  However, now they know they have provided a large benefit to one child, which is to the financial detriment of their remaining children.  They are retired and they have no way of replenishing these funds to compensate their remaining children.  They are fearful that this will cause resentment amongst their other children.

Ensuring that you have invested in adequate Life Insurance in its many forms does not just protect yourself, your children and spouse, it protects your extended family members too.   It is important as adults with dependants and financial responsibilities that we do everything within our power to ensure we do not place an unfair financial burden on our older parents or family members.   Taking out comprehensive life cover according to our individual needs is core to achieving we never place our wider family members or parents in a financially precarious position.

Income Solutions offers a 4 step process that is free of charge and allows us to demonstrate the advantages of obtaining financial advice.  If you or a family member would like to find out more, please contact Income Solutions at www.incomesolutions.com.au  

Unintended Consequences of the ‘Stress Sickie’

Lee Nickelson is an Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee

The term ‘take a sickie’ has been part of the Australian vernacular for generations, with many thinking it is their god given right after a big weekend to take an extra recovery day or two before heading back to work. Since employers have cottoned on to this phenomenon, many now request a medical certificate forcing a trip to the doctors and a medical reason for the absence. No harm.. surely?!

What many of us have been slow to realise is that these medical certificate trips are recorded on our medical history, which are commonly requested by insurers to make assessments both when applying for insurance cover and at the time of a claim.

A few trips to the doctor citing stress in order to get some time off work could result in an insurer putting an exclusion on all mental health conditions when they offer you cover. Or worse, a group insurer could use these doctor’s visits as proof of a pre-existing condition and then knock back a legitimate mental health claim in the future.

Another interesting learning I have come across when implementing insurance plans for clients are the instances where doctors’ reports do not match with the recollections of the patient. Many doctors are unaware of the consequences of writing ‘discussed feelings of depression’ when it could have been a more general conversation without a medical diagnosis. An insurer underwriting again may infer this as evidence of a pre-existing or recurring condition when it could have been a discussion of state of mind at the time.

It is all the more important to pay attention to how we interact with our medical records, including what we see our doctor’s for, what notes they actually write down during the consultation and who has access to those records going forward, because of the Governments new My Health Record initiative.

A My Health Record will be created for every Australian after 31st January 2019 unless you opt out. The record is designed to be a central place medical professionals can view your medical conditions, treatments, medicine details, allergies and test or result scans.

I encourage all Australians to take charge of your medical history, be aware of the implications of seeing a doctor on future insurance applications, and head to the My Health Record website before 31st January 2019 to make a decision for yourself whether a digital health record is right for you. https://www.myhealthrecord.gov.au/for-you-your-family

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product. Past performance is not a reliable guide to future returns. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.

Insuring Your Most Valuable Asset

There is a good chance that your largest, most valuable asset is underinsured. It is not your car, it is not your home, it is your ability to generate an income. Income protection insurance can replace up to 75% of your income through your inability to work due to injury or illness. Knowing what cover is appropriate for yourself is an important step in safeguarding your financial life goals. If there are people dependant on you to provide an income, we recommend a review of your existing insurance cover.

Many Australians may not be concerned with insuring their largest financial asset, as it does not immediately impact them. A 2015 report completed by Rice Warner ‘Underinsurance in Australia’ states that, existing levels of Income Protection Insurance for Australians only meets 16% of their needs.

It is possible that you have some default cover within your Superannuation account.

This can be checked by calling you Superannuation provider or reading your Annual Superannuation Statement.

However, this level of cover may only provide you with Income Replacement for a period of two years. There is a possibility that you might not be able to return to work after a period of two years.

  • What then?
  • Can you still achieve your personal financial goals with no income?
  • What happens if you cannot work because of injury or illness?
  • Where will you get an income to meet your daily living expenses?

These are important questions you should ask yourself if others rely on you to provide for them. The best time to act is now.

By taking the time to talk to a Financial Advisor or completing an online insurance calculator you can determine what cover amounts and period is sustainable for your needs.

Do not put others in a worse off position because you did not take the time out to check what level of cover is appropriate for you.

Rice Warner. (2018). Australia’s relentless underinsurance gap. [online] Available at: https://www.ricewarner.com/australias-relentless-underinsurance-gap/
Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product. Past performance is not a reliable guide to future returns. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way

Income Protection Insurance

Gareth Daniels from Income Solutions

Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee 

Are you looking at purchasing your first home or planning on starting a family soon? If so this is the perfect time to look at getting an income protection insurance policy in place or re-evaluating your current policy.

Buying a new home or starting a family, or both, is such an exciting time and you’re probably getting lots of different opinions from family and friends on what you should be doing, so let’s break down the facts.

What is Income Protection Insurance?

Essentially, it pays up to 75% of your income if you are unable to work due to injury or illness. If you have debt, dependants, or both. We all know that whether your income is coming in or not, the bills still need to be paid. It is advisable to have income protection insurance to help pay those bills and support your loved ones in unforeseen circumstances.

When paying your income protection insurance, you have main 2 options, paying through your superannuation fund or paying directly from your income.

Paying through your super fund

If you choose to pay your income protection through your super fund, it will cover the premium giving you more money in your pocket to pay for other things. This strategy is useful if you are trying to pay down your mortgage or have school fees to pay as the premium is coming from your superannuation, not your wage, so there is more money in your pocket to pay down your mortgage or pay for childcare or school fees.

However, there can be some restrictions on claims, dependant on your policy, we advise that you speak to your financial advisor to clarify these specifics.

Paying income protection from your wage

Alternatively, you can pay your premium straight from your wage, and in many cases, this can prove a greater tax deduction compared to the tax rebate that will be paid into your super fund.

For example, take the average Australian wage of $60,000. This person will pay around 32.5% tax each financial year (not including the Medicare levy). If they pay their income protection insurance from their wage they will get back about 32.5% of that premium at tax time.

How do I know if I have the right cover?

These days everyone has a super fund, and you may have a level of income protection insurance by default, however this policy may not be right for your personal situation. So, feel free to grab your super fund statement and come in for a coffee and a chat and we can look at the right coverage for your current situation.

 

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.

The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. 

Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.

Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product.

 

 

 

Estate Planning and Expecting

I’m six weeks away from having my second child and all of the normal feelings of excitement and nerves are in abundance!

This time round however, I am feeling more comfortable that my children will be brought up the way I want, and be provided for financially, if the worst were to happen. If I were to die, or my husband and I were to die together, we now have a plan which gives us huge peace of mind. We know that our children will have the best guardians they could possibly have, and they will not be left under any financial stress.

As the reality of becoming a mum for the first time two years ago rushed towards me, it gave me that kick up the bum to take some important things out of the ‘too hard basket’ and get sorted. It was only while stocking up on nappies and onesies did I see the importance of having adequate personal insurances. My husband and I were about to become responsible for another human being! Our baby would be totally dependent on us. I quickly organised with a trusted adviser to review our situation and together we went through a process that analysed our position, understood our needs, and put appropriate cover levels in place prior to the arrival of baby Lachlan (just in the nick of time!)

This second time round, I have been a little more organised. I knew I needed to refresh the $30 Post Office will kit my husband and I put in place ten years ago when we got married. Our only dependent then was our beloved Golden Retriever fur baby, Max. He was going to be well taken care of in my or our absence, and our limited super balances would be passed on to each other in the first instance, or the people we wanted if we both passed away (or so we thought).

We still hadn’t changed this will since having Lachlan, so I decided to attend one of the Estate Planning sessions run monthly at our offices by Bronwen Charleson, (Principal Lawyer) or Daniel Black (Senior Lawyer) at Coulter Roache Lawyers—I soon realised that our post office kit was in fact not sufficient and neither were our assumed superannuation arrangements.

Bronwen spoke about various strategies to pass wealth on to intended beneficiaries in the most protected manner. Depending on circumstances this could be a simple plan to a more comprehensive trust that provides asset protection, tax advantages and a plan and statement of wishes around the care of minors. I met with Bronwen not long after the session and had her ‘refresh’ (i.e. completely rewrite) my will and even include and allow for number two!

If you would like to attend an Estate Planning Session, info and registration details can be found on our website and our next free information session is Monday 11th July, 5:30pm at our Geelong office.

As an additional tip, here is a link to an external site which outlines some of the important aspects of Estate Planning.

Erica Fountain
Head of Innovation 

Please note: The advice in this article is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.

Myth #5: Now I have a plan, I am set

Blog - Linked In Size (1)For the final instalment of the Financial Planning Myth Series, I wanted to touch on a Myth that even some people who already engage a Financial Planner believe; that is “Now that I have a Plan in place, I am all set and can execute the plan myself.

A Financial Plan is not unlike a Personal Training or eating plan; you get much better results when you have a coach who holds you accountable to enact the plan and to stick to it! Like weight loss or muscle gain goals, achieving financial goals requires hard work and dedication. Getting successful outcomes is always easier when you have someone challenging you along the way.

Whilst our industry is full of people who recommend change for change sake (mostly when it is not actually required), occasionally there are changes to your circumstances that you might not realise cause ripple effects right throughout your Financial Plan. For example, consider the impact of a large home renovation, whilst this might not seem like a huge deal, have you considered things like:

  • Does your Will need changing to reflect your wishes and to equalise your estate?
  • Do you require higher sums of Life and Total & Permanent Disability Insurance?
  • Does your Home Loan need reviewing and could you get a better rate now you have more debt (hence more bargaining power with the Bank)? Perhaps you should contact your Mortgage broker or lending specialist.
  • Are there strategies you could use like Debt Recycling to reduce your Mortgage more quickly?

A good Financial Planner can give you the tools and create a Plan to get you on the right path, but even the best laid plans will require tweaking and adjustments over time. The value added through a long-term partnership with your Planner can be invaluable.

To quote Will Rogers: ‘Even if you’re on the right track, you’ll get run over if you just sit there.

Steven Nickelson, Financial Planner

 

Please note: The advice in this article is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.

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