5 tips on holding Life Insurance through your SMSF

 

 

Holding your Life Insurance through your Self-Managed Super Fund can be an effective method to secure the future of yourself and your loved ones. The following tips may help:

 

1. Considering Life Insurance within your SMSF is actually a requirement by the ATO
Findings from the government’s Cooper review revealed that only 13% of self-managed super funds actually held any form of Life insurance. In response to this underinsurance gap the ATO made it a requirement for all trustees to at least consider life insurance in their strategy document or meeting minutes. This does not mean that trustees are required by law to hold life insurance within their SMSF, it does however mean to be compliant with the ATO, it must be documented that consideration was given to life insurance within the fund.

 

How we can help: We can provide you with the right information to pass onto your SMSF accountant in order to ensure your SMSF remains compliant in this area.

 

2. Cash Flow Benefits
Since your SMSF owns the policy, it will fund the premiums. This can free up your cash flow, especially for times when money is tight or when you have more pressing financial priorities. It can be beneficial however to implement a contributions plan in order to avoid the eroding effect insurance premiums can have on your retirement savings.

 

How we can help: We can assist you in either transferring your current policy into your SMSF or advise on an alternative policy to undertake should this be appropriate for your situation.

 

3. Tax Efficiency
Tax savings can be achieved by funding your insurance premiums via pre-tax dollars through salary sacrifice and personal tax-deductible super contribution strategies. This effect is magnified for those in the higher tax brackets in reducing taxable income.

 

How we can help: We can provide you with specialist advice as to a contribution plan to avoid retirement savings erosion and to reduce taxable income.

 

4. Protect your assets within your SMSF
Life insurance within your SMSF can help avoid the sale of valuable assets such as property should something happen to a member. Not having the right insurance in place could have a major effect on the liquidity of the SMSF, as the death or TPD of a member is unpredictable and the consequences could be damaging to the other members.

 

How we can help: we can provide you with a review of your current cover and make recommendations based on your needs to cover any risk in this area.

 

5. Protecting Members
The underlying motive behind the requirement for members to consider Life Insurance in their SMSF’s is to prevent members from being underinsured. Putting in place the right amount of cover for your situation can help protect yourself and your loved ones from financial strain should something tragic happen.

 

How we can help: If you don’t know how much cover you need let us provide you with recommendations for appropriate levels of cover so that your financial future cannot be hindered by a devastating injury or illness.

 

 

The information provided in this document, including any tax information, is general information only and does not constitute personal advice. It has been prepared without taking into account any of your individual objectives, financial situation or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser. From time to time we may send you informative updates and details of the range of services we can provide. If you no longer want to receive this information please contact our office to opt out.

Debt Management

Reducing debt is considered a low risk strategy. You can save money in interest payments without the risk of market volatility.

 

Benefits

  • You can reduce the overall interest cost on your loan.
  • You may be able to reduce the term of your loan.
  • You have potential to increase your wealth by directing surplus cash flow towards savings instead of repaying non-deductible debt.

 

Options for managing debt

The following strategies may be able to help you reduce your debts faster, relieve your cash flow, reduce your overall interest cost and reduce the term of your loan.

 

Make additional repayments

A simple strategy to reduce your debt is to make additional repayments with your extra cash flow or savings. Not only will this reduce the level of your debt, but it will also reduce the overall interest you pay over the life of your loan.

 

A similar strategy is to make your repayments more frequently. Interest on your loan balance is calculated daily, so the more frequently you make repayments, the quicker your debt will fall. One idea is to halve the amount of your monthly repayments and repay this amount fortnightly instead. As there are 26 fortnights in a year compared to 12 months, this adds an extra couple of repayments to your loan each year.

 

Use an offset account or redraw facility

Offset accounts and redraw facilities both allow you to put money against your loan to reduce the amount of interest you pay, whilst also enabling you to withdraw the money if you need.

 

  • Offset account – allows you to put money into a bank account which is attached to your loan
  • Redraw facility – allows you to put extra money straight onto your loan.

 

To improve the effectiveness of these features, you could use a credit card with an interest free period to pay for your everyday expenses, thereby allowing your cash to sit longer in your offset account or redraw facility. However this strategy will only be effective if you ensure the full balance of your credit card is repaid in full every month.

 

Consolidate your debts

Debt consolidation is where several loans are combined into one loan account. An example would be to increase your home loan to repay your car loan and credit card debts.

 

Debt consolidation can help to:

  • ease cash flow – annual repayments on the one loan might be less than your total repayments on the separate loans
  • reduce fees – you will only pay account fees and transaction fees on one loan account
  • improve manageability – you will only have one monthly statement and one monthly repayment.

 

Potential disadvantages of debt consolidation include:

 

  • longer repayment period – a loan which might have been paid over a shorter period may be extended unless your total repayment levels are maintained
  • increased interest cost – if your loan term increases, the total interest cost over that term may also increase
  • fees – a loan restructure may incur additional fees and charges.

 

It is important to be disciplined when consolidating debt to ensure that debt is not re-accumulated from other sources. It is particularly important to take care with the use of credit cards – ensure the full balance is repaid every month and/or reduce the credit limit.

 

Repay high interest rate debt first

If you hold a number of different types of loans, such as a home mortgage, a personal loan and a credit card, the interest rate applying to each loan will usually be different, with some rates being considerably higher than others. Repaying the loans with the higher rate first will create savings compared with repaying all the loans at the same time.

 

For example, a credit card will usually charge the highest rate of interest, so by directing extra savings to repay this debt instead of the home mortgage (which usually has a lower rate of interest), you can save interest over the long term. If implementing this strategy, it is important to continue making the minimum required repayments on other loans at the same time.

 

Repay non-deductible debt first

A loan that is used to purchase an asset that does not generate income is called a non-deductible debt. These loans include your home loan, personal loans and credit cards. Your interest repayments on these loans are not generally tax deductible.

 

Loans to purchase assets that produce taxable income for you are called deductible debts. They include margin loans, investment property loans and investment loans to purchase shares and managed funds. Your interest repayments on these loans are generally tax deductible.

 

The tax deduction associated with deductible debt helps to reduce your cost of borrowing. The value of deduction is dependent on your marginal tax rate – the higher your marginal tax rate, the higher the value of your deduction.

 

Example (deductible debt): Tom borrows $100,000 to buy a share portfolio. His interest only loan has an interest rate of 7% per annum and Tom pays tax at the rate of 34.5% (including Medicare). The interest payable each year is $7,000 ($100,000 x 7%). Tom claims this amount as a tax deduction which reduces his income tax otherwise payable by $2,415 ($7,000 x 34.5%). This means Tom has indirectly reduced the interest cost of his loan to $4,585.

 

As non-deductible debts do not contain any tax benefit to help reduce the cost of your loan, these loans should be repaid as quickly as possible.

 

Other things you should know

  • All borrowing requires discipline. It is important not to over-commit as this will increase the likelihood that ongoing interest and loan repayments can be met.
  • Before making any changes to your loan, you should confirm with your lender what fees and charges may apply if your loan is restructured or if you make additional repayments.
  • You should review your life insurance cover regularly as your debt levels change. It is important you have sufficient cover to help meet loan repayments in the event that your income ceases because of illness, disablement or death.
  • Tax advice should be sought prior to making any changes to investment related borrowings.

Australia’s preference: Insure car but not Income?

 

“83% of Australian’s insure their cars but only 28% insure their income.” *lifewise.org.au
Which is the most important asset to you?

 

It seems far from ideal that in the tragic event of a car accident that your car is more protected than yourself.
Take for example a 35 year old man, Joe. He earns $60,000 per annum and has a car worth $20,000. Over the next 20 years, if Joe’s salary stays at $60,000, he will earn approximately $1.2 million dollars over that period, not taking into account any pay rises.

 

Does it come as a surprise that Joe insures his car worth $20,000 to him, yet he does not insure his ability to earn which over the next 20 years is worth $1.2 million to him? It should. It is also surprising that Joe is not alone.

 

An unexpected illness, broken leg on the sports field or a severe back injury could put you out of action for months. This leaves a number of uninsured Australian’s struggling to meet the everyday costs of food, rent, and utilities, not to mention if you have a mortgage, kids, or personal debt. What would you do without an income?
Income Protection costs a fraction of your income yet can provide you with a replacement monthly income stream should you suffer an injury or illness rendering you unable to work. It can provide you with the peace of mind that an injury or illness won’t stop you from receiving a smooth monthly income.

 

Talk to one of our advisers today about putting in place a plan to cater for your personal needs. Take control of your income, don’t leave it up to chance.

 

The information provided in this document, including any tax information, is general information only and does not constitute personal advice. It has been prepared without taking into account any of your individual objectives, financial situation or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser. From time to time we may send you informative updates and details of the range of services we can provide. If you no longer want to receive this information please contact our office to opt out.

Reaching 100 years old: some tips from Sweden

The key ingredients are simple according to Researchers at the University of Gothenburg, Sweden. “Refrain from smoking, maintain healthy cholesterol levels and confine themselves to four cups of coffee a day” says Dr Lars Wilhelmsen.

 

The study analysed data on 855 Swedish men born in 1913, including 10 who are over the age of 100. The scientists were able to identify factors that promoted longevity of life, particularly after the age of 55.

 

The study also showed that it also helps to own a house by the age of 50 — indicating a high standard of living — display a good level of middle-age fitness and to have a mother who lived a long time.

 

The research found that 27 per cent of the study participants survived to the age of 80 and 13 per cent to 90.

 

Of all the deaths occurring after the age of 80, 42 per cent were attributed to heart disease, 20 per cent to infection, 8 per cent to stroke, eight per cent to cancer, six per cent to pneumonia, and 16 per cent to other causes.

 

You can find the complete findings in the Scandinavian Cardiovascular Journal.

Group life insurance vs Individual life insurance

It may be the case that you have existing life insurance or income protection within your employment arrangement, perhaps within your superannuation fund.
 
Recent research by Dexx&r has shown that with rises in ‘group’ type policies in the past few years, it may be the case that your options are now available to ‘compare the pair’ through your own individual policy.
 
Money Management magazine explains this research further: 
http://www.moneymanagement.com.au/news/insurance/2014/individual-risk-products-now-trump-group
 
 

The Importance of Trauma & Income Protection Insurance

How would your family manage when faced with a traumatic event ?

When faced with a traumatic event, families need to cope emotionally, you may also need to make changes to your living arrangements and you may also be facing loss of income. The last thing you need to worry about at such a stressful time is finance.

Trauma insurance can provide peace of mind by ensuring you have sufficient money to fund changes in living arrangments, providing an income while you are off work & therefore creating less stress for your family at a difficult time.

Traumatic events are more common than you may think.

Take a look at the igures below :

Work Related Statistics (trauma and income protection)
• 2 of 3 males, 1 of 3 females, or 1 of 2 Australians will suffer a traumatic event during their working life
• 50% of all trauma policies sold are to “white collar” workers
• Most trauma claims occur within 2.5 years of policy commencement
• A person is 3 times more likely to suffer trauma than death before age 65
• There are approximately 117,000 Australians who are “permanently unable to work” due to illness or injury
• 1 in 3 Australians will be off work for more than 3 months during their working life due to illness or injury
• When a person is off work for more than 3 months, then the average duration of claim is usually 4.2 years!
• The most common type of work related injury is industrial deafness, followed closely by back related injuries
• Each year, approximately 1 million Australians experience serious injuries or illness, which either require hospitalisation or prevent them from working
• Half of all serious accidents occur away from work, so workers are not covered by workers compensation
• 20,000 Australian children (minors) are primary care givers for at least one parent due the parent’s sickness or disability
• 1 in 2 Australians will be off work for more than 7 days during their working life due to illness or injury
• Less than 1 in 5 Australians have income protection cover with a benefit period of greater than 2 years (Yes, this includes company sponsored plans!)
• Nearly 10% of Australian full-time workers leave work due to chronic illness
Source: “Year Book Australia 2002 – Health – Special Article – Chronic diseases and risk factors”. by Australian Bureau of Statistics

The Importance of Life Insurance for Key Personnel

Many business owners don’t hesitate to insure physical assets such as motor vehicles, plant and equipment. However they often overlook the importance of insuring themselves (and other key people in the business) in the event of death, disability, illness or injury.

This can be a very risky oversight, as the long term absence or loss of a key person can have a dramatic impact on your clients business.

Our strategy guide can help explain to your client how insurance can provide an injection of cash to:
•protect personal and business assets
•offset a reduction in business revenue
•fund an orderly transfer of business ownership, and
•meet a range of other objectives.

To find out which strategies suit your clients needs and circumstances please call Veronia on 1300 78 55 77

Review your life insurance today

No matter what stage your business is at, it is most important to review your life insurance policies to make certain you have sufficient coverage for your business needs.  Just as you would increase the insurance on your home if you were to make improvements to it, so too should you amend the insurance on your business if it has changed.

Life insurance is intended to preserve and protect your intentions for your business and for your survivors. It’s critical that it reflects where your business is currently at!

Please contact our office on 1300 78 55 77, or email your details to admin@keyperson.com.au for a no obligation assessment.

Who inherits your business debt?

Your business is everything to you. It’s your passion, and your livelihood. It helps provide the lifestyle you want for you and your family.

If you are like many business owners you may have taken on business debts, either to start your business or to help it grow. It’s a normal part of being in business. But have you stopped to consider who would inherit those debts in the event of your unexpected death?

Contrary to the belief of many business owners, your business debts do not automatically get extinguished on your death. Instead it falls to your guarantor(s) to meet that obligation. That could mean your loved ones find themselves dealing with the burden of debt as well as the enormous emotional strain your death would cause.

How would your family cope if they were saddled with your business debt and the main asset of the business – you – were no longer around? Would they need to sell the family home? Move schools? Change their lifestyle?

As a financial adviser specialising in life insurance for business owners, I have helped many business owners put in place protection plans which help protect their loved ones, business partners and staff.

This type of protection can be easy to obtain, affordable, and in many cases tax deductible.

To arrange an obligation free appointment (at a time convenient to you) call Veronia on 1300 785577 or email on admin@keyperson.com.au.

Is your business safe?

Your business is everything to you; it’s your passion and your livelihood.

But have you ever stopped to think what would happen if illness or injury meant you couldn’t work for a month, or even longer?

Statistically there’s a high chance you’ll get to find out, because before age 65 there is a three in five chance that you’ll be unable to work for a month (due to illness or injury), and a one in three chance that you’ll be disabled for 3 months or more.

The consequences of being unable to work and generate an income are probably fairly obvious: your ability to meet the day to day cost of supporting your lifestyle (and your family’s) will be severely diminished, especially if you have no savings to fall back on. Many people will start to struggle to meet their commitments after a couple of months, and at that point you may need to consider selling assets, moving, cutting back, or getting help from family or friends. It’s not something that bears thinking about.

Your business expenses don’t stop even if you do

On top of all this – and often overlooked – is the fact that many costs associated with running your business are fixed. For example, the rent on your premises, your vehicle lease, salaries of your staff, electricity, telephone, cleaning, business insurance; the list goes on and on. How would you pay those costs? And what would happen to your business if you couldn’t?

You may think you are protected but you probably aren’t

You may think that workers compensation, or your business interruption insurance, or even your income protection policy – if you have put one in place – covers these expenses, but they won’t.

A simple way to protect yourself, your business and your employees

Business expenses insurance is a type of cover designed to pay these fixed business expenses in the event that you are unable to work due to illness or injury. Think of it as income protection for your business, sitting alongside your own income protection cover, and leaving you in the best possible position to deal with the financial ramifications of you being unable to work.

Fixed business expense Covered under business interruption insurance? Covered through personal income protection? Covered through business expenses cover?
Rent, rates, taxes and insurance on your premises
Utilities (power, internet, landline, mobile)
Vehicle leasing, registration, insurance
Leasing – equipment, tools, loan repayments
Salaries of non income generating employees, including Super Guarantee and payroll tax
Contracted costs (eg. cleaning, security, advertising)
Other costs eg bank fees, interest on loans, business insurances

Business expense protection – an ideal partner for your own income protection

Your personal income protection is designed to cover up to 75% of your own taxable income from your business. But if you have fixed business expenses and you don’t also cover these, you’ve only got half the protection you need.  Business expenses protection is the ideal partner to your personal cover, and will help ensure you still have a business to come back to.

Your next step is easy

Your specialist risk adviser can explain the benefits of Business expense protection in more detail, and determine whether it is appropriate to your circumstances. They can also put an overall protection plan in place tailored to your unique needs and budget. Keyperson       offers business expenses protection from a number of Australia’s leading life insurers.

For more information, or to arrange an obligation free appointment, email Veronia at admin@keyperson.com.au or phone on 1300 785 577.