Income Protection and Total and Permanent Disability

Transcription

1 Income Protection and Total and Permanent Disability

2 Important information George s story and Leona s story are hypothetical stories and are included for illustrative purposes only. The names and identifying features do not reflect any particular person. The information and calculations in this brochure are correct as of 29 May CommInsure is a registered business name of The Colonial Mutual Life Assurance Society Limited ABN AFSL (CMLA). Any advice has been prepared without taking into account your objectives, financial situation and needs. Because of that, before acting on the advice, you should consider the appropriateness of the advice having regard to your objectives, financial situation and needs. CMLA is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN The Commonwealth Bank of Australia and its subsidiaries (excluding CMLA) do not guarantee or in any way stand behind the Personal Insurance Portfolio products. Life and Income Protection form part of Personal Insurance Portfolio. Life and Income Protection and Personal Insurance Portfolio are issued by CMLA. A Product Disclosure Statement (PDS) describing this product is available from comminsure.com.au. You should consider the relevant PDS in deciding whether to acquire the product. The information on taxation is of a general nature only and is based on the continuation of present taxation laws, rulings and their interpretations. As individual circumstances differ, you should seek assistance from your taxation adviser. This information is provided by CommInsure. We can be contacted by phone, our web site or you can write to us. You pay us premiums or fees for the products that we provide to you. CommInsure does not charge you any additional fees for providing you with any general financial product advice. Employees who provide this service do not receive specific payments or commissions for the giving of the service but do receive salaries. Bonuses and other benefits may also be paid to employees including advisers employed by the Commonwealth Bank Group who may receive bonuses based around the sales of products.

3 Income Protection and Total and Permanent Disability Many Australians are leaving themselves open to possible financial difficulties should illness or injury occur, causing a loss of income. When it comes to insurance, income protection is often overlooked or misunderstood. A recent survey conducted by CommInsure revealed or highlighted that most people are unaware that income protection premiums are generally tax deductible, and, in the case of an injury or illness that prevents one from working, can provide payments up until the age of 65. Before retirement, one in three Australians will be away from work for more than three consecutive months due to sickness or injury¹, yet fewer than one in ten Australians have income protection². 1. Institute of Actuaries of Australia Interim Report of the Disability Committee, Commonwealth Bank Insurance Report, September Quarter 2004.

4 What is income protection? Income protection insurance protects your ability to earn an income should you suffer sickness or injury providing financial security for you and your family. In circumstances where you are permanently or even temporarily unable to work due to sickness or injury, it makes sense to have a financial contingency plan to help keep the wheels turning. It means your family s day-to-day expenses can be maintained without major financial upheaval. With income protection, you can insure up to 75% of your regular income, and up to 15% of your superannuation contributions (with the Super Continuance Option), the premiums of which are generally tax deductible. In general, once the waiting period has been satisfied (normally 30 to 90 days), benefits will be paid for the duration of the benefit period, which may be up to age 65. Note You select the most appropriate waiting period and benefit period for yourself at the time of application. Many people who do have income protection hold it within their superannuation³, however, the benefits are generally paid out for a maximum of two years. If you re sick or injured and can t work for an extended period of greater than two years, a dedicated income protection policy can provide regular monthly payments until you return to health or reach retirement at age Newspoll Survey, February ATO TD 98/27, tax determination.

5 Why CommInsure Income Protection? A tax efficient structure CommInsure s unique and innovative Total and Permanent Disability (TPD) Cover Option, available within an Income Protection policy, provides greater choice in the event of total and permanent disability, helping to maximise tax benefits whilst on claim. This option provides you with a choice at the time of claim of receiving a monthly benefit payment or a tax free lump sum cash payment. Key benefits Some of the key benefits that exist with the TPD Cover Option are: n You can receive a tax free lump sum payment in the event of total and permanent disability. n This option is available at no extra cost. n It allows you a choice between a lump sum payment and a monthly payment at the time of claim. n The own occupation Total and Permanent Disability definition applies. n No doubling up on TPD Cover via lump sum TPD and Income Protection contract (the saved premium can be used to provide further cover including trauma cover). n If the lump sum payment is selected: There is no requirement to continually certify your disability each month, up to the age of 65. It cannot be taken back, so if any medical advancement renders you healthy and capable of working, you don t need to worry about repaying the lump sum. Had you elected to receive an ongoing monthly benefit, however, payments may cease in the event that you are no longer deemed disabled. You have the opportunity to invest the lump sum benefit payment and generate an additional income stream.

6 How does it work? TPD Option provides the best of both contracts: an Income Protection and lump sum TPD Cover within the one Income Protection policy. Both TPD Cover and Income Protection have competing advantages, with some overlap of cover. Income Protection has expansive cover and tax deductible premiums, TPD on the other hand offers a lump sum payment and tax free benefits. CommInsure s TPD payment is calculated on an age-based formula and the client s Annualised Monthly Benefit. Our product provides up to 180 monthly Income Protection payments (taxable income) or a tax free lump sum up to a maximum value of $2.5 million (this is equivalent to 15 years of monthly benefits paid all at one time). Besides saving customers a significant amount of tax, and offering the benefit of cash upfront, the lump sum TPD payment also reduces the risk to the customer that their future Income Protection monthly benefit would cease or reduce because of improved health caused by medical advancement or in the unfortunate event of death before age 65. Payment of the lump sum also saves the claimant the hassle of ongoing proof of invalidity each month to receive their Income Protection payments. As an Australian first, and for the price of an income protection product only, CommInsure offers a combined product with the best of both worlds. To help CommInsure offer this, the Australian Taxation Office (ATO) has deemed 10% of the Income Protection premiums to be related to the TPD benefit and hence 90% of Income Protection premiums are tax deductible ATO tax ruling CR2005/15, 30 March 2005.

7

8 How to calculate the lump sum benefit Under the TPD Option, if, before the cover expiry date, you suffer a total and permanent disability, you can choose to receive a tax free lump sum benefit instead of the monthly benefit. The lump sum benefit is calculated as the lesser of either: n $2.5 million or n an amount equal to an age-based multiple of the Annualised Monthly Benefit, where the Annualised Monthly Benefit is twelve times the total of your monthly benefit and any Super Continuance monthly benefit. Age-based multiple is: Age next birthday Multiple Less than 40 years to 44 inclusive to 49 inclusive to 55 inclusive 9 56 or more 65 minus their age next birthday when the lump sum benefit becomes payable If the lesser of the above amounts is a nil or negative amount, no lump sum benefit is payable. Formula: TPD lump sum benefit = Annualised Monthly Benefit x multiple

9

10 George s story George (42) is an accountant and earns an annual income of $130,000. He suffers from a heart attack that leaves him totally and permanently disabled. Luckily George had selected the TPD Cover Option as part of his Income Protection policy and is entitled to receive a monthly benefit of $8,000. Age 42 years Monthly benefit = $8,000 Years to age 65 = 23 Multiple for TPD Option = 13 Monthly benefit payment Total benefit (to expiry age) $8,000 x 12 1 = $96,000 x 23 2 = $2,208,000 5 (pre tax) = $1,571,130 (post tax) Lump sum payment Total benefit $8,000 x 12 1 = $96,000 x 13 3 = $1,248,000 4 Although the net after tax payment total benefit is greater than the total benefit paid under the TPD Option, this is only half the picture. If George can earn a return of as little as 2.94% (pre tax), then it is better for him to take the lump sum and invest it. Assumptions The lump sum benefit is calculated as the lesser of: $2.5 million or an amount equal to A (factor) times the Annual Monthly Benefit. Assumes 2006/07 taxation rates and includes 1.5% Medicare levy. 1. Annualised Monthly Benefit is twelve times the total of your monthly benefit. 2. Years remaining to reach age A is 13, if your age next birthday is between the ages of 40 and 44 inclusive. 4. If the TPD benefit is taken as a lump sum it will be treated as a tax free payment. 5. If the payment is taken as an Income Protection monthly benefit, it will be treated as income and be taxable for income purposes.

11

12 Leona s story Leona is a personal assistant and has an annual income of $50,000. She is involved in a car accident and her injuries have left her totally and permanently disabled. Because she has the TPD Cover Option, at no extra cost to her Income Protection policy, she receives a claims payout of $3,125 per month. Age 42 years Monthly benefit = $3,125 Age-based multiple = 13 Monthly benefit payment Total benefit (to expiry age) $3,125 x 12 1 = $37,500 x 23 2 = $862,500 5 (pre tax) = $697, (post tax) Lump sum payment Total benefit $3,125 x 12 1 = $37,500 x 13 3 = $487,500 4 If Leona can earn a return of 6.49% (pre tax) then it is better for her to take the lump sum and invest it. Assumptions The lump sum benefit is calculated as the lesser of: $2.5 million or an amount equal to A (factor) times the Annual Monthly Benefit. Assumes 2006/07 taxation rates and includes 1.5% Medicare levy. 1. Annualised Monthly Benefit is twelve times your monthly benefit. 2. Years remaining to reach age A is 13, if your age next birthday is between the ages of 40 and 44 inclusive. 4. If the TPD benefit is taken as a lump sum it will be treated as a tax free payment. 5. If the payment is taken as an Income Protection monthly benefit, it will be treated as income and taxable for income purposes. 10

13

14 Why CommInsure? Over the past year, CommInsure has received a number of awards recognising our award-winning product range, excellent customer service and our commitment to leading industry and consumer education by building awareness of the need for insurance. Our awards include: n Most Innovative Income Protection Product Asset Magazine Awards 2006 n Life Insurance Company of the Year Australia and New Zealand Institute of Insurance & Finance Awards 2005 n Best Life Insurance Company Australian Banking & Finance Insurance Awards 2005 n Best Life Insurance Product Australian Banking & Finance Insurance Awards 2005 n Term Life Product of the Year Personal Investor Magazine Awards for Excellence in Financial Services 2005 n Trauma Product of the Year Personal Investor Magazine Awards for Excellence in Financial Services 2005 (joint winner) n Best Call Centre Australian Banking & Finance Insurance Awards 2005 Life Insurance Company of the Year 2005 Best Life Insurance Company and Best Life Insurance Product 2005 Term Life and Trauma Product of the Year

15

16 Like to know more? Speak with your adviser or Call call us us now now on on am 8 pm Mon Fri comminsure.com.au CIL