Free up your cash flow – insure through your super!

insurance concept

Personal insurance is necessary to protect your family’s future if the unexpected happens or tragedy strikes. But it’s also important to make sure you buy it in a tax-effective way.

 

Benefit from up-front tax concessions
If you buy personal insurances such as Life and/or Total and Permanent Disability (TPD) through your super fund, you may be able to take advantage of a range of ‘upfront’ tax concessions generally not available when insuring outside super.

For example:

• if you’re eligible to make salary sacrifice contributions, you may be able to buy insurance through a super fund using pre-tax dollars (read the case study below)
• if you earn less than 10% of your income from employment (e.g. you’re self-employed or not employed), you may be eligible to claim your super contributions as a tax deduction [1], and
• if you earn less than $50,454 pa, of which at least 10% is from employment or a business, and you make personal after-tax super contributions, you may be eligible to receive a Government co-contribution of up to $500 that could help you cover the cost of future insurance premiums. [1]
These concessions can make it cheaper to insure through a super fund, or help you get a level of cover that may not, otherwise, have been affordable. [2]

 

Case study
Jack, aged 44, is married to Claire, aged 41. Claire is taking a break from the workforce while she looks after their young children. Jack works full-time, earns a salary of $100,000 pa and they have a mortgage.
After assessing their goals and financial situation, their adviser recommends Jack take out $700,000 in Life & TPD insurance so Claire can pay off their debts and maintain the family’s financial position should he die or become totally or permanently disabled. The premium for this insurance is $1,0463 (in year one) outside super. [3]
Their adviser also explains it will be more cost-effective if he takes out the insurance through his MLC Wrap super account. This is because if he arranges with his employer to salary sacrifice the insurance premium into his super account, he’ll be able to pay the premiums with pre-tax dollars. [4]

On the other hand, if he purchases the cover outside super:
• he’ll need to pay the full premium of $1,046 from his after-tax salary, and
• he will also pay income tax of $669 (after taking into account his marginal rate of 39% ) on the part of his income required to fund the insurance premium. [5]

By insuring in super he could make a total effective saving of $669 on his first year’s premium.

MLC Table 3

Note: This case is for illustrative purposes only and has been prepared to highlight the importance of speaking to a financial adviser about the benefits of insuring in a super fund. It’s important that you don’t erode your super balance as a result of having premiums deducted from super. This can be prevented by ensuring sufficient contributions are made to cover premium deductions.
A financial adviser can also identify a range of other opportunities to make your insurance more cost-effective over the longer term.

More positives

Another benefit of insuring through your super account is you can have the premiums deducted from your super balance, without making additional contributions to cover the cost.
This can help you afford insurance if you don’t have sufficient cash flow to pay for it outside super. It may also free-up cash flow to help you take out other important insurances such as Critical Illness, which can generally only be purchased outside super.
Critical illness insurance may provide you with a lump sum payment to pay medical, rehabilitation and other expenses if you suffer one of a number of specified critical illnesses such as cancer, heart attack or stroke.

Protecting your income

Another type of insurance to consider is Income Protection, which can replace up to 75% of your income if you’re temporarily unable to work due to sickness or injury.
If you take out Income Protection insurance in a super fund, you can:
• make super contributions to fund the premiums and benefit from the range of upfront tax concessions, or
• arrange to have the premiums deducted from your existing account balance, without making additional contributions to cover the cost.

Alternatively, if you purchase the cover outside super, you can generally claim the premiums as a tax deduction. The best approach for you will depend on a range of factors, including the tax implications.

To find out more about the benefits of insuring through super, please contact Melbourne: 9654 0555, Geelong: 5229 0577 or Colac: 5232 1200

Note: Unless stated otherwise, this article does not take into account any of the measures announced in the 2016 Federal Budget that has a proposed date in future financial years.

Footnotes:
1. Includes assessable income, reportable fringe benefits and reportable employer super contributions. Other conditions apply.
2. This will usually also be the case if the sum insured is increased to make a provision for any lump sum tax that may be payable on TPD and death benefits in certain circumstances.
3. This premium is for a 44-year old non-smoking male, is based on MLC’s Life cover Super standard premium rates as at February 2015 and includes the policy fee.
4. Because super funds generally receive a tax deduction for death and most disability premiums, no tax on contribution is generally deducted from salary sacrifice super contributions.
5. Applies in the 2015/2016 financial year and includes a Medicare levy of 2%. Calculation of pre-tax income required to fund insurance premium:
– A. Pre-tax part of income for funding premium = $1715
– B. Tax on A. is A. x marginal tax rate $1715 x 39% = $669
– C. Post tax part of income for funding premium A.-B.= $1715 – $669 = $1046

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.

Navigating Aged Care Solutions

Unfortunately, I have a reasonable amount of personal experience when it comes to Aged Care solutions.

I say “unfortunately”, however I could just as easily say “fortunately” because both my mother and my mother-in-law are very well cared for in the Aged Care facilities they now call home.  Ironically, both my mother and mother-in-law suffer from Parkinson’s Disease and the associated Dementia that goes hand in hand with this terrible illness.

My mother-in-law has been in care for close to two years now.

My father took on the role of full time carer for my mother and up until recently has done an amazing job.  However, a downturn in my mother’s health saw the requirement for full time professional care and my mother has been in a care facility for nearly four months now.

The requirement to enter an Aged Care facility is a very emotional time for a family.  After all, it is likely to be the final move in a loved one’s life.  It comes with issues such as a loss of independence, loss of freedom and the adjustment to communal living which can make it more difficult to have private time or private space.  Sometimes, the decision to move to an Aged Care facility means a separation from family– there might be a need for one partner to go into care while the remaining partner stays in the family home.

This is the case for both my parents and parents-in-law – after 50+ years of marriage they will spend their final years apart.  It can be a time of great loss and sadness.

So what can we do as family members?  We all want the best for our loved ones.  What are the questions we need to ask?  What care options are out there?  Where do we start?

I have been actively involved in the process of finding an Aged Care facility for my mother and I would like to share with you some of the things I have learnt along the way.

  1. Don’t be in denial.
    It’s just not a helpful position, and makes things harder for all parties involved.  Another unhelpful attitude is pride.   Whether it is you or a loved one that needs more help, be honest about it.  When you’re honest, you can look at a situation critically and clearly assess what is working for you and what isn’t working for you.  It’s only when you are honest that you can acknowledge the issues and begin to address them.  Importantly, you can allow yourself the time to think through the pros & cons of various situations, rather than being forced to make quick time critical decisions because you have delayed the inevitable.
  2. Assess what type of care you need.
    There are many different types of care available ranging from home help packages to residential Aged Care facilities.  It may be that independent living is still possible with the help of a home based care package.  Alternatively, independent living in a communal environment, such as a retirement village, may actually improve the social quality of life for someone who wants to keep their independence but is socially isolated in the home.  It’s really important to think about the future too.  Is there a medical condition that is likely to see an increased need for care in the future?  If so, you might consider settling into an accommodation option that can see you remain in the same facility but receive different levels of care as health declines.  A talk with your trusted medical professional can help to connect you or your loved one with the right option.
  3. View lots of different facilities.
    The Discharge Officer at St John of God Hospital made this recommendation to me, and it proved to be a good one.  I first looked at the Government website myagedcare.gov.au. Under the Aged Care Homes tab there is a “Find a Facility” link.   This was a good starting point as I could see all of the aged care facilities close to the family home.  My father said he wanted to be at the nursing home every day, and as he’s 72, my main consideration was finding an Aged Care facility within easy access to his home.  On the website I could see location, services and costs.  It was very helpful and I arranged for a viewing with four different facilities.  We viewed each accomodation venue as a family unit, as it was important we all agreed.  Unfortunately the only person not in a position to make comment was my mother, so we wanted to get it right for her.  I have no doubt that all of the facilities we viewed were good but some were more suitable than others for my mother’s particular medical condition.  As ‘hipster’ as it sounds, I think the most important thing was the vibe I felt at each facility – after all, this was going to be Mum’s new home.  I still have a lovely memory from the tour of the facility we chose.  One of the residents of the home came up to the staff member and asked her what she was doing.  The staff member said that she was showing us through, because we thought we might like to live there and asked the resident if she wanted to come for the walk too.  The resident did, and she and the staff member walked hand in hand through the rest of the tour.   That was the kind of care I wanted for my mother and the deal was struck.  Four months on and I have nothing but praise for the facility.
  4. There’s no two ways around it – Aged Care can be expensive. 
    The current Government policy states that if you can afford to pay for your care, you will.  There are various different fees payable, the number of fees you need to pay and the amount of each payment is individual to each resident.  This has perhaps been the trickiest area of the entire process.  For my family, Mum & Dad are self-funded retirees so they weren’t already registered with CentreLink, who also assess the level of Aged Care funding you will receive.  I have around 25 years of experience in the Financial Planning industry, and the complexity of the situation coupled with the amount of paperwork required was mind blowing.  Aged Care is a speciality area of advice and fortunately, through my work I was easily able to connect to an information service to help me navigate the path ahead.  Amazingly, we are still waiting for the final payment assessment from CentreLink – some four months after Mum first entered care.  It was never my finances and so it was never my decision, however if I had my time over again I would be more insistent that Dad start sorting out his finances in order to be ready to pay future fees.  As it stands, Dad had mostly illiquid assets that need to be sold.  This has probably been the most stressful part of the entire process and the most valuable lesson I could pass onto anyone in the same situation is to look at what investment re-structure may be needed and then take action sooner, rather than later.  Mum & Dad are long term clients of Income Solutions, so we took this journey with their Financial Planner.  This process gave Dad great peace of mind, as it was the area he was most worried about.

 

As you get older you begin to realise that circumstances can change in the blink of an eye.  In my mother’s situation she was in hospital following an extreme change in her health that, and in hindsight had been something that was gradually building.

We were called into a crisis meeting to determine what the future held.  We always had the option to bring her home, however the message of the medical professionals handling her care was very strong – they strongly recommended against it.  As a family we shed a lot of tears around this decision.  My father never wanted this day to come and had convinced himself that he was OK at home (even though it was taking a toll on his health). My brother thought that the change of living arrangements would have such a detrimental effect on Mum’s Dementia that he was reluctant to see her go into care.  Maybe I’m the realist in the family but as sad as I was about the situation I could see that it was the only viable option available to us.  Ironically I was the blubbering mess at all of the hospital meetings but the only one that supported the idea.

So, as a family we have had a very stressful time.  Looking back, there are some things we could have done to make it easier and to be more prepared when the time came.

If you or a loved one is likely to face the same type of decisions in the future – please take my advice from my personal experience and start talking about it now.  Access all of the professional channels available to you – medical and financial services – so you are in a position to achieve the right outcomes for you.

Income Solutions will be running a free information session on Monday 30th May, to anyone who may be in a similar situation or who just want to know more information. To register for the seminar, get advice on Aged Care or for assistance in general finance, please visit www.incomesolutions.com.au/events.

 

Alison Adams – Business Development Manager

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