Yet only 50 per cent of female parents hold life insurance policies, more often than not through super. And only one in five full-time working mums has enough insurance to cover their income for three years or more, well short of recommended guidelines.

While death is something nobody likes to think about, the sad fact is around 4400 Australian parents with dependent kids die each year and many more become sidelined as a result of illness or injury.

Unless you’re independently wealthy, the only way to safeguard your family’s financial wellbeing under these circumstances is by adequately insuring both parents.

Life’s facts

It typically costs $537,000 to raise two children from birth to age 21 years. One in four women will be diagnosed with cancer before the age of 75. In Australia, women over 40 years of age have a one in three chance of developing coronary heart disease.

Life is full of surprises – good and bad. Insurance provides you with the ability to transfer the financial impact of some of the more drastic surprises that can happen. Insurance will never compensate for the loss of a loved one, or replace their role in the family, but it can help reduce the financial burden by providing the capital to ensure you and your family have choices.

It won’t happen to me

Jenny, 37, and George, 41, had two young children and what seemed to be the perfect life. George earned $100,000 a year and travelled inter-state frequently on business. Jenny was a stay-at-home mum and planned to return to work when both kids reached school age.

The couple saw a financial adviser to find out how best to protect the family should anything happen to Jenny.

Their adviser recommended that they insure Jenny’s life for the value of the mortgage plus a lump sum to provide an income stream for childcare and school fees. They followed his advice, taking both Term Life insurance and some Trauma cover.

A year later, Jenny was diagnosed with cancer. When Jenny’s condition worsened, the couple used her Trauma benefits to pay off the mortgage and George decided to take a less demanding job to spend more time with Jenny and the children.

Eight months later, Jenny died. George took three months unpaid leave to look after their children. He hired a nanny and part-time housekeeper, and has set up trust accounts for the children – all made possible by Jenny’s Term Life insurance policy.

• Do you have a mortgage?
• Do you have any personal loans?
• Do you have any credit card debt?
• Do you have dependants?
• Would your financial position be affected if you were to suffer from an illness or injury (remember you would need to have enough capital to fund medical expenses and the ability to take time off work to recover)?
• Do you want to have enough capital to look after your dependants if you were unable to care for them for an extended period of time or perhaps indefinitely?

If you answered yes to any of the above questions, then you should seriously consider speaking to IAS about a personal risk management plan.

Super investment earnings are also taxed at a maximum rate of 15%.

For average income earners there may be significant tax benefits in making pre-tax or salary sacrifice contributions rather than posttax contributions.

Tax deductions and offsets are also available to certain individuals, so it’s worthwhile learning about the different tax rules to ensure you take advantage of all the perks available.

What tax rates are applied to your super?

Your super is taxed at concessional rates when:

▪ money comes into your account

▪ your super savings earn a return

▪ you take your money out of the super fund

Money that comes into your super account

Employer contributions (including salary sacrifice contributions) are usually taxed at 15%. Voluntary contributions that you make from your after-tax earnings are not subject to any additional tax when contributed to super.

Investment earnings on your super savings

Earnings (including capital gains) on your super savings are taxed at a maximum rate of 15%. This tax-rate can be much lower than investment earnings and capital gains outside of super where tax is calculated on your personal income tax rates (as high as 46.5%).

Money leaving your super fund

The amount of tax you pay when you retire and/or apply to get your super benefit will depend on a number of factors, including how much super you have and how and when you take your super.

If you are aged over 60 years, you will pay no tax when withdrawing from a taxed scheme such as your super account with Aviva.

Tax deductions and offsets self-employed or unemployed

If you are self-employed, substantially self-employed (less than 10% of your assessable income is from eligible employment) or not working for an income, you can claim a full personal income tax deduction for personal contributions to super.

Such contributions, up to a certain level, are concessionally taxed. You should discuss this with your financial adviser to ensure your taxable contribution does not exceed these thresholds.

Pension payments

An alternative to taking your super as a lump sum is to commence a retirement income stream. There may be tax advantages for you.

When you receive payments from an income stream any payments you receive after age 60 are tax free. Investment earnings on your money used to buy the pension are also tax‑free.

Prior to age 60, your pension payments become part of your assessable income and are subject to normal income tax rates. However, you also have access to a 15% income tax offset. If you have also made after-tax contributions to your super, you may also be entitled to a tax-free portion.

All of which means you pay less tax.

We are constantly bombarded with advertising that bestows the advantages of one fund over another, with much of the focus being given to short-term investment performance.

Of course, the question of fees charged by super funds is never far from the front page.

But you may well ask, which is the best super fund for me?

With the level of complexity of superannuation and super fund offerings constantly growing, the task of selecting a suitable fund can be very taxing for the lay person.

For many Australians, engagement with the superannuation system is quite low and the idea of following the crowd and having employer superannuation contributions made to the employer’s “default fund” is an easy option.

But, is the default fund the most appropriate fund?

Many superannuation funds open to members of the public offer an extensive array of features and investment choices.

Generally the more “bells and whistles” a fund offers, the higher the fees. On the other hand, more basic offerings may result in lower fees.

A person with fairly simple superannuation needs may be adequately served by a fund that can accept employer and personal contributions, provides some basic life insurance cover, and offers a limited number of investment options.

For someone with more sophisticated needs, a fund that offers an extensive range of investment options, the ability to not only accumulate retirement savings but also pay a pension, provide binding death benefit nominations, and tax the fund at the individual member level, may be the ideal solution.

Selecting an appropriate fund can be complex. Having a qualified financial adviser review your present superannuation situation and arranging to consolidate multiple superannuation accounts will go a long way towards ensuring your super is best matched to your circumstances.

Each year in Australia, it’s estimated that around 19,000 deaths are related to smoking.

According to the Australian Institute of Health and Welfare, smoking increases the risk of coronary heart disease, stroke, heart failure, peripheral vascular disease, lung cancer, cervical cancer and osteoporosis.

The added risks of smoking are also reflected in what you pay in insurance premiums each year – with smokers generally required to pay more for cover than non-smokers, all other things being equal.

But that’s not to say that can’t change. If you quit smoking, and stay that way, you can ask for a re-assessment of your insurance premiums.

Former smokers may be eligible for a premium reduction if:

▪ You haven’t smoked tobacco or any other substance in the past 12 months

▪ You have no intention of resuming smoking of tobacco or any other substance in the future

▪ You have not been advised to quit smoking on specific medical grounds

▪ You haven’t been advised that you have a medical condition associated with your history of smoking

Not only could you be doing something that’s good for your health, you could also save yourself a considerable amount of money.

For a 45 year old male with Life, Total and Permanent Disablement and Trauma Premier Covers, you could save over $3,000 per annum by not smoking.

If you’d like to arrange a re-assessment of your life insurance, speak to IAS.

Using debt, you could buy a house you may not be able to afford outright. You just need some equity and you can borrow the rest, assuming you can make the repayments.

Debt can also be used to buy investments with potential to grow in value, like share and property. This strategy, known as gearing, may help you to build an investment portfolio faster than you could have otherwise.

To help repay the loan you’ll have income generated by your investments and possibly some tax deductions. So, for many people, servicing an investment loan can be an achievable outcome.

2 Types of Debt

Inefficient Debt

• This is used to buy goods, services and assets that don’t generate income, will depreciate in value, or have no value once they are used
• You can’t claim a tax deduction on the interest cost of the debt
• You don’t receive any income to help you repay the debt, so to service the debt you have to rely on your own resources
• It’s wise to reduce this kind of debt as quickly as possible

Efficient Debt

• This is used to acquire assets that have the potential to grow in value and generate assessable income
• You can claim a tax deduction on the interest cost of the debt
• You can use the income generated by the asset to help repay the debt
• It’s more easily serviceable, and it can be used to accelerate the creation of wealth

10 Strategies to Make the Most of Debt

• Consolidate your debts to save money
• Use your emergency cash reserve more effectively
• Harness your cash flow to reduce inefficient debt
• Use borrowed money to build wealth
• Gear your investments gradually by borrowing in instalments
• Transform your debt using a financial windfall
• Build wealth via debt recycling
• Offset your investment loan to retain tax efficiency
• Make gearing more tax-effective for a couple
• Leverage your investment via an internally geared share fund

Talk to us to determine which of the strategies best suit your situation.

Historically speaking, insurance was sold to the main breadwinner. More often than not, that was the husband. Today men still earn more, on average, than women,
however the gap is closing fast. Australian women now earn 92% of male incomes with many women now out-earning their husbands.

For this reason, you’d expect more women would be taking out insurance to protect their income and their lifestyle. This is not the case. Despite women making up 45% of the workforce, they still represent only 15 – 20% of all insured incomes.

It’s not just about income
Protecting your income is obviously important however the fact female incomes are increasing only tells part of the story. Women are often more financially vulnerable than men – mainly because they typically spend less time in the workforce. This is partly because of children and also because women are more likely to retire early.

Women are often the ones who take time off to look after children or elderly relatives. Less time in the workforce means fewer savings, less superannuation and a decreased ability to recover from financial setbacks. Since women live longer than men, these setbacks can be even more financially damaging over time.

What types of insurance should women have?
Income protection typically covers up to 75% of your income if you can’t work temporarily because of sickness or injury – making it extremely valuable for working women.

To protect yourself against diseases like cancer, you can take out Recovery (also known as ‘Trauma’) insurance. It can pay a lump sum on diagnosis – helping you replace your income and assist in covering the costs associated with treatment.

Life and/or Total and Permanent Disability (TPD) insurance can provide a lump sum to you or your beneficiaries if you die or are seriously disabled. This can be vital if you have a family and/or a mortgage to look after.

If you’re self-employed or run a business you can also cover your fixed business expenses if you can’t work temporarily because of sickness or injury.

Strategies to make insurance more affordable
It’s worth talking to an IAS financial adviser before you take out insurance as there are often a number of ways you can reduce the effective cost of your premiums.

For example, income protection and business expenses insurance premiums are often tax deductible. You may also be able to reduce the effective cost of Life and TPD insurance by taking it out inside super – using your pre-tax money to pay premiums. Bear in mind there may be some restrictions on your benefit if you insure inside super.

Get the cover you need
The best way to find out what cover you need is to speak to an IAS financial adviser. We can help you get the right cover and make sure it’s structured in a way that makes it as cost-effective as possible.

However as we grow and assume more responsibilities, we realise that we can not only enjoy life, but enjoy it well into old age. Thirty years ago, a 65 year-old was an “old person.” Today, 65 year-olds boast that 65 is “the new 50” and they are probably right!

Nonetheless, living longer, healthier, more active lives introduces us to “longevity risk” – the risk of outliving our money.

With the fallout from the recent economic downturn and global financial crisis, many Australians experienced a decline in their retirement savings. In fact, recent research suggests that those within five to 10 years of retirement had, on average, deferred their retirement by 3.7 years. As people become more aware of the actual costs of living a long and satisfying retirement we will see a shift to people remaining engaged in the workforce for longer periods.

The options for people to remain in the workforce and generate additional income to support their lifestyle are numerous. Some may decide to remain working on a full-time basis, others may transition into retirement by moving from full-time to part-time work, some who have already retired may seek to re-enter the workforce, while others may look to start their own business.

For most people, superannuation remains the most tax effective way of accumulating wealth for retirement and then managing the payment of a regular income stream. Even modest amounts of superannuation, when coupled with income support payments such as the age pension, can provide retirees with sufficient income to enjoy their retirement, hopefully supplemented with some of life’s luxuries.

Planning for a successful retirement requires research, discipline and time.

Our financial planning services can prove to be a very powerful ally when preparing for retirement. The earlier we start preparing, the more likely we are to achieve the sort of lifestyle of which we have always dreamed.

We are hosting our “Swim, Don’t Sink with SMSFs” seminar, the second in our Practice Improvement series.

Craig Burton, accounting practitioner and CA will share practical ideas on how Self Managed Super Funds can benefit your practice. Craig has been practising for 20 years, specialising in SMSFs for 17 years.

Topics that will be discussed include:
- Buying property in Super
- Transition to retirement
- Gearing in SMSFs
- Sole Purpose Test
- Working with a financial planner

Craig will also share with you his experience of swimming the English Channel – a fascinating story of discipline and dedication – skills he uses everyday in his own practice.

Date: Wednesday March 24th 2010
Time: 7:00am for 7:20am until 10:30am
Location: AAP/PIS, Level 6, 3 Elizabeth Plaza, North Sydney NSW 2060
Refreshments: Breakfast, Coffee/Tea
Price: FREE!
Availability: Limited to 50 seats!

Click here for a printable version of the invitation.

To register for the event, please call Andrew on (02) 8268-2905.

 

Over the last 40 years we have seen dramatic changes in attitudes – political, social and financial.

During the 1970’s, Australians were careful with their money and disciplined with their savings. In the mid 1970’s Australians were saving between 15% and 20% of total household income. Property was the most popular investment vehicle – the “great Australian dream” of owning a home was the status quo, despite high interest rates. The view of retirement was that it was a “rest” for a long life of hard work. Retirees had worked and saved hard to own their home outright.

Throughout the 1980s, the average Australian household owed less than $50 in debt for every $100 in income. Since 1995, that figure has more than tripled to almost $160 in debt for every $100 of income. The average house price was much lower but interest rates were much higher so it made sense to pay off the house as quickly as possible. The environment in the 1980s promoted the “property is king” attitude. That is, the “great Australian dream” was owning your own home, owning a holiday home, and then owning some investment properties to retire on – an achievable “reward” for a lifetime of hard work.

By the 1990’s, house prices were on the rise, and though interest rates were falling, people’s ability to afford a home was declining. More people, not just the wealthy, were dabbling in the sharemarket. Household savings as a proportion of income steadily declined over this period – people were saving just over 5% of their income. The attitude towards retirement began to shift from being a “reward” to a “right”.

The noughties finally saw widespread debt on a national scale. At times, the savings rate dipped into negative territory – households were spending more than they were saving. House prices were on the rise and well in excess of income growth. Owning property had become out of reach for many Australians, even with low interest rates. More Australians were comfortable being saddled with debt, particularly younger Australians, and retirement had come to be seen as a “right”, not a hard earned “reward”.

A number of factors contributed to increase preparedness to take on debt. Real incomes have risen strongly, Australians are better educated, inflation and interest rates have been low and financial deregulation has increased the amount households can borrow. With so much money being pumped into housing, it is not surprising that the value of houses has increased dramatically.

Due to our increasing levels of debt, inadequate savings and longer life expectancy, many retirees or pre-retirees, those over 55, still take up to 5% of debt with them into retirement.

The retirement issue has been compounded by longevity. Longevity is not only increasing but the increase is accelerating. Those who survive until 90 could spend a third of their lives in retirement. The problem is compounded by the very low fertility rate of baby boomers. Most commentators agree that it is the retirees’ responsibility to fund their retirement, just as previous generations have done and subsequently will need to do.

So how much will you need to live in retirement?

A general rule of thumb is that you’ll need approximately 65% of your pre-retirement income. ASFA believes a couple can live comfortably in retirement with an annual income of $51,132 pa, which requires a capital base of $770,000.

To live more modestly on an income of $27,695, you will need $417,000 of capital.

What can you do to be prepared?

• Save – stay in control of your own financial destiny.
• Talk – engage IAS to find out how much superannuation is enough.

(Source – Investment Exchange)

However as your business changes, it’s easy to outgrow your insurance.

If you have made some big changes recently, like expanding your business, or taking on a new partner, you may need to reassess your insurance. As your circumstances change, so do your insurance needs.

Not updating your insurance can leave you vulnerable when you need it most.

Sound familiar?

Do any of these events sound familiar to you? If you’ve recently made changes to your business, like those below, it could be time to review your insurance.

- You are expanding your business

- You have a new business partner 

- You have taken out a large loan

- You have taken out a personal guarantee

- You are employing new people in your business who are crucial to its operation

- There is a change to your business structure

- You are leasing new equipment / premises

Why is business insurance important?

Running a business is hard enough without adding the complications of injury, illness or even the death of a business partner or key person.

That’s why every business should include business insurance as a matter of course. Important areas for every business owner’s consideration include protecting any business loan, succession planning and business expenses.

Businesses with two or more owners should consider what might happen to the business if one of the owners dies, becomes totally and permanently disabled or suffers a terminal or traumatic illness.

A business generally depends on a few people to produce the profits, provide the capital or manage the business. If there is no viable succession plan, there may be significant financial hardship for the surviving business owners, as well as for the surviving family members.

Business insurance is a specialised area of insurance which involves undertaking a full and detailed interview with a financial adviser to determine the best plan for your business, including:

- needs of the business

- amount of insurance necessary to satisfy these needs

- cost of the insurance

- prioritisation of the business needs and insurance (having regard to the cost) and

- requirements necessary for the amount of insurance proposed

Talk to IAS about identifying your businesses needs. The goal of business insurance is to provide a funding mechanism. The funding can help the business to financially survive a key person crisis. A business that has business insurance in place may also demonstrate to creditors, shareholders and employees the principles of sound financial management and planning.

(Source | Comminsure)