Five minutes with two top advisers Miles Tauber and Andrew Unterweger. Understanding autism. Suicide the need for exclusion

Transcription

1 AUTUMN 2012 THE COMMINSURE PUBLICATION FOR FINANCIAL PLANNING PROFESSIONALS Five minutes with two top advisers Miles Tauber and Andrew Unterweger Understanding autism Suicide the need for exclusion Why choose an indemnity style income protection policy? Make insurance pay off at tax time

2 Welcome to Autumn 2012 Update Magazine This issue in focus 03 News in brief 04 Five minutes with two top advisers: Miles Tauber and Andrew Unterweger 06 Understanding autism 08 Suicide the need for exclusion 09 Why choose an indemnity style income protection policy? Welcome to the latest edition of Update magazine. With National Autism Week around the corner, our Chief Medical Officer, Dr Bill Monday discusses this significant and often misunderstood health issue. We also look into the insurance implications of suicide. Following the CommInsure Life Insurance Survey, which we shared with you in February, we now provide some comparative insights from our peers in the US, with insurance buying preferences and behaviours from across the pond. As the financial year end approaches, the InsuranceTech teams walks us through some income protection and term insurance tax strategies. You will also find our regular top adviser profile and get their views on the current advice market and their tips for success. Thank you for your continued support. Regards 10 Bridging the insurance gap: lessons from the US 12 Make insurance pay off at tax time Paul Rayson Managing Director CommInsure 14 Your CommInsure contacts Important information This information has been prepared by CommInsure, a registered business name of The Colonial Mutual Life Assurance Society Limited ABN AFSL (CMLA) a wholly owned but non-guaranteed subsidiary of Commonwealth Bank of Australia ABN AFSL This information is of a general nature only and has been prepared without considering your client s objectives, financial situation or needs and you should before acting on it, consider its appropriateness to your client s circumstances. Any information on taxation, superannuation, and social security in this magazine is a guide only and is based on current laws, rulings and their interpretations as at the date of the magazine. As individual circumstances differ, your clients should consider speaking to their financial and tax adviser on social security, superannuation and taxation issues. Please note that any case studies used are for illustrative purposes only, names and details have been changed to protect privacy. The views and opinions expressed are those of the relevant author and are not attributable to CommInsure. To the extent permitted by law, CommInsure accepts no responsibility for views and opinions expressed. This magazine is for the use and information by advisers and Commonwealth Bank Group employees only. It is not to be issued, reproduced in whole or in part, or made available to members of the public. Advisers should refer to the relevant product disclosure statement for further clarification. 2 UpdateMagazine

3 News in brief Job cuts bring unemployment benefits to the fore With job cuts for Aussie workers a common headline of late, CommInsure s unemployment benefit should be top of mind for advisers and their clients. If your client becomes involuntarily unemployed they can apply to have their minimum monthly loan repayments paid by CommInsure. We will also waive your clients income protection policy premiums for up to three months. Your client must have been employed for at least 180 consecutive days prior to making the claim. This means permanently employed, permanent employment or employed or employment under a fixed term contract. They must be involuntarily unemployed for more than 60 consecutive days and during this time be registered as unemployed with a recognised employment agency and actively seeking employment. The client s loan/s must be a loan with the Commonwealth Bank Group. The loan type means a home loan, investment home loan, line of credit facility, business loan, personal loan or margin loan which is funded by the Commonwealth Bank. It does NOT include credit cards. CommInsure, in determining the unemployment benefit to be paid, will pay the minimum monthly loan repayment up to the client s monthly benefit, as shown on their policy schedule. At the time of going to press, Australia s unemployment rate was 5.1 per cent, according to the Australian Bureau of Statistics. A loan with the Commonwealth Bank Group includes Colonial, Bankwest and CBA loans. For more information on the definitions, limitations, exclusions and other information relating to the Unemployment Cover Benefit, please refer to of the CommInsure Protection Reference Document. Boost to CommInsure s disability benefit For individuals that are totally disabled, CommInsure has boosted its Income Protection Total Disability benefit by 33 per cent. For many clients, that s 100 per cent of their pre-disability income. As part of our product upgrade announced in November 2011, this boosted Total Disability benefit applies to all income protection clients declared totally and permanently disabled due to a serious medical condition, and comes as an in-built feature, regardless of the client s benefit or waiting periods. Cancer remains top trauma claim Whilst CommInsure celebrates the first birthday of its Fast Track Trauma and Terminal Illness claims service, the anniversary serves as a stark reminder that cancer is still the number one trauma impacting Australians. Since unleashing Fast Track the first of its kind on the market twelve months ago, the claims so far have been comprised: cancer 60 per cent; circulatory 27 per cent; neurological 5 per cent; respiratory 2 per cent; benign tumours 1.5 per cent; genito-urinary 1.5 per cent; musculoskeletal 1.5 per cent; accidental 1 per cent; and eye disorders 0.5 per cent. Between January and December 2011 CommInsure has Fast-Tracked assessments for 320 trauma and terminal illness claims that s 44 per cent of new claims lodged last year, or $45 million in benefits paid to clients. Of those trauma and terminal illness claims fast-tracked, we finalised 62 per cent within 24 hours, and 22 per cent in 48 hours. UpdateMagazine 3

4 Five minutes with two top advisers Miles Tauber and Andrew Unterweger After letting Miles drive his Porsche, Andrew, or Doc as he is fondly known, and he were buddies for life. Nearly 20 years later and the two continue to share a passion for high performance, particularly when it comes to their insurance portfolios. Meet Miles How long have you been in the financial advice industry? Since I started when the code of practice came in. How long have you known Doc and where did you meet? Since about 1993/94. We met when my father Martin was state manager for Norwich Union. Doc was an adviser for Norwich. We did an Amaroo track defensive driving course together and Doc let me drive his Porsche Speedster around the track! In 1996 I worked with Andrew learning the business and making appointments with orphan client lists being handed out by the insurance companies. What were the main drivers for encouraging Doc to write with CommInsure? Great people and great support, in addition to excellent product offerings and first class underwriting but most of all, knowing that claims get paid. How valuable has your BDM support been in creating new business? Extremely valuable when it comes to new business, large cases and they especially help with servicing such a large number of policyholders. What are the secrets to your success? The KISS formula keep it simple stupid. No need to complicate these businesses. Build long-term relationships with clients and deliver clear concise advice, and you will succeed. Can you recall a claim that really highlighted the value of advice to your client? I ve had a few. One was a breast cancer client who was diagnosed after the policy lapsed. The client came in to see me 18 months after the event and following all her treatment. I went back to CommInsure and asked them to review the policy stating that she probably had breast cancer before the lapse. CommInsure paid her 50 per cent of the original sum insured. I don t know any other insurer that would have done this for my client. What area do you focus on and are you seeing any trends in this area? Mainly risk at this time. The investment and finance part of the business continues to grow slowly. If the markets settle then we will see investment opportunities created and clients looking to take advantage of more favourable market conditions. On the finance side interest on purchasing properties has picked up and with interest rates headed lower we are seeing a number of clients looking for preapprovals and adding property to their portfolios. If you weren t a financial adviser what career path would you choose? Own and run a prestige panel beater. They make a fortune! Biggest achievement in your career? Being lucky that I enjoy what I do every day in my business. 4 UpdateMagazine

5 Meet Doc How long have you been in the financial advice industry? Twenty five years. How did you first get into the industry? One of my best friends was a stock broker and his father had a large broking business. I was a medical student but became interested in equities and started my own business in the Stock Exchange building. What were the selling points of writing with CommInsure? My BDM, Matthew Nott, who came and explained what he was prepared to assist with to make us try CommInsure. After this meeting, I thought that this was worth exploring further. Matt was also instrumental in getting mobile underwriter Gabi Varnier assigned to us. She is very knowledgeable and easy to talk to. Your medical background must be useful as an adviser? Having a medical background is very important, especially for large cases and situations where the client s health is nonstandard. I can discuss applications with underwriters, who I might add, are a massive help to get things done. I had one client that had a quadruple bypass and we still got him cover. What are the secrets to your success? I think success is a state of mind and that everyone has their own perception of success. The general perception seems to be more focussed on financial outcomes I see these merely as by-products of doing business efficiently. People tend to spend too much time trying to follow guidelines, rules and processes, but may not understand what they are trying to do. Success in this business is about people taking out insurance and endorsing you to others. In fact, all of my business comes through referrals from clients. Can you recall a claim that really highlighted the value of advice to your client? Yes, and unfortunately it was in relation to a very good friend of mine. He was aged 40 when he called me whilst he was bored at an airport in Canada, and told me he had some pain in his groin. I told him to see his medico and he was diagnosed with melanoma of the testis. His wife was pregnant with their first child so I immediately had his trauma claim paid so he could spend some time with his family. Very sadly, he died six months later. I still see his wife and know that his son has been able to be educated as his father would have wanted, and his family has not wanted for anything financially. Having a medical background is very important, especially for large cases Where do you see the biggest opportunity for your business in the next 12 months? Estate planning and SMSFs. If you weren t a financial adviser what career path would you choose? I have already studied medicine and spent over a decade in private equity and investment banking, so maybe golf (though I am not very good). Biggest achievement in your career? Listing companies on the ASX. Biggest non work related achievement? Being blessed with a wonderful family and having many clients who have become great friends so that my business life is as enjoyable as any recreation. UpdateMagazine 5

6 Understanding autism The instance of autism is on the rise in Australia, if certain bodies of research are to be believed, but do we really understand what autism is? With Autism Awareness Month upon us in April, CommInsure s Dr Bill Monday provides his insights into the condition made famous by Rainman. Autism is defined as an abnormal development in social interaction with a narrowed range of interests and activities. Autism is defined as an abnormal development in social interaction with a narrowed range of interests and activities. It is a disorder usually diagnosed in early childhood (usually by age three) and is not uncommon. The prevalence of Autism is quoted as being between two to 20 per 10,000 people which would mean that if we use a mid-range figure, at least 20,000 Australians have this condition. However, we must also consider that whilst the incidence of autism seems to be increasing, this may be due to a greater awareness of the condition, the lack of a specific objective test to diagnose autism, and changes in diagnostic practice. 6 UpdateMagazine

7 Controversy still surrounds environmental factors as a cause of autism such as heavy metals and childhood vaccines. Spectrum of traits The manifestations of autism are numerous and varied and for this reason it is better to look at autism as a spectrum of symptoms which may only mildly affect an individual to severely impairing a person to the extent that they are unable to care for themselves. The term Autism Spectrum Disorder (ASD) is widely recognised and appropriate for underwriters assessing the severity of the case being assessed. Autism may present as impairment in non-verbal communication such as avoiding eye contact, difficulty in developing relationships and not interacting socially. There may be a delay in speech and language comprehension and repetitive and stereotyped patterns of behaviour. Preoccupation with dates, numbers and a fascination with movement such as spinning objects can occur, and it is stereotyped behaviours such as these that movies such as Rainman and Mercury Rising have attempted to portray. Impulsivity, aggressiveness, self-injurious behaviour and a lack of fear or response to real danger are more concerning traits. Autistic children and adults are also known to have an increased incidence of depression. Seizures (epilepsy) may develop in up to 25 per cent of adolescents. These are important points to recognise for underwriting such cases. Prognosis The condition does not appear to be static and improvement or deterioration may occur during adolescence. Language skills and overall intellectual levels are the best form of prognosis. As discussed, this condition varies in its expression with the higher functioning autistic being able to live and work independently but the converse is also true, with autism disabling the adult thus requiring a full-time carer. Up to 60 per cent of people with autism continue to need care throughout life. In an Australian study, 12 per cent of children with autism attended school without educational restrictions whilst the remaining 88 per cent experienced some restrictions and 47 per cent needed to attend special classes in a mainstream school or a special school. Life expectancy is reduced in severe cases with significant mental retardation and comorbid disease such as epilepsy. Self-injurious behaviour and the reduced awareness of dangerous situations have to be also considered. Mild cases would be expected to live a normal life expectancy. Autism impacts more on morbidity and mortality and it may not be possible to offer income replacement or disability cover to those where the features of this condition impact heavily on a person s ability to pursue an occupation. It must be noted though that each case requires individual consideration given the wide spectrum of presentation. In terms of cause, there does appear to be a genetic link with five per cent of siblings exhibiting autistic traits. The risk of autism appears to be higher in parents over the age of 35 and autism is more common in males. Controversy still surrounds environmental factors as a cause of autism such as heavy metals and childhood vaccines. Asperger s Asperger s is a defined condition that shares some of the characteristics of autism but importantly there is no associated problem with language acquisition nor is there any associated intellectual impairment. As with autism there is impairment in social interaction and there may be impairment in occupational function. Difficulties with peer relationships and a lack of understanding of the conventions of social interactions may occur. The inability to adapt and change and the preoccupation with certain topics and interests can certainly interfere in the occupational duties of a person with Asperger s syndrome. More subtle signs include difficulties in empathising with others, problems understanding another person s point of view, difficulties with small talk and a preference for routine and schedules. A final group in the ASD spectrum is Pervasive Development Disorder for people with marked social impairment who fail to meet the criteria for autism. Treatment Treatment of autism usually requires a multi-disciplined approach including an assessment by a specialist in developmental disorders, the provision of special education and behavioural management, and the use of speech and occupational therapists. Complementary therapy includes art and music therapy, animal therapy such as horse riding and sensory integration therapy. Drug treatment is varied and is used to control the various aspects of autism. Most of the drugs used act on neurotransmitters in the brain and overlap with drugs used for attention deficit disorder, depression and anti-psychotic medication which is prescribed to reduce hyperactivity, repetitive behaviour, withdrawal and aggression in autism. In Australia there is a support group for ASD known as Autism Spectrum Australia (Aspect) which can be found at Dr Bill Monday is CommInsure s Chief Medical Officer Sources 1. DSM IV Diagnostic and Statistical Manual of Mental Disorders 4th Edition 2. Australian Bureau of Statistics ( 3. Autism Spectrum Australia 4. Mortality rate is increased in persons with autism who also have epilepsy. Autism speaks and Miami children s hospital 5. Autism: UpdateMagazine 7

8 Suicide the need for exclusion Over 2,000 Australians commit suicide each year and more than 75 per cent are males. Most people do not purchase a life insurance policy with the intention of making a claim, though life insurance can provide financial security to the families that are left behind. Suicides account for approximately 1.5 per cent of the 143,946 deaths that occurred in Australia in Many life insurance policies in Australia have an exclusion period of 13 months from the date of policy commencement. Life insurance policies sold elsewhere in the world have varying exclusion periods. Taiwan, Hong Kong and the United Kingdom all have 12 month exclusion periods for suicide, while USA has a 24 month exclusion period. During this period, if the life insured commits suicide the insurance company will not pay a death benefit. Suicides are ranked 10th for the cause of male death for all ages. For males aged suicides are the number one cause of death. Suicides occur when individuals suffer stress and/or depression and do not find an appropriate coping strategy. The depression is likened to a computer virus in the brain that affects rational thinking. Coping strategies recommended by Suicide Prevention Australia include: sleep, talking with friends or family, talking to a psychologist or counsellor, or ringing a crisis line (such as LifeLine on ). Suicides are a significant social loss. Our economy loses a productive member of society. Insurance companies often have not factored suicides into premium calculations, and must pass along any loss via increased premiums to remaining policy holders. Recent research has indicated that there is a strong correlation between higher sums insured and suicides. There is also a strong correlation between the end of the suicide exclusion period of 12 months and increased suicide rates. The research concluded that suicide exclusion periods should be increased to 36 months (three years). This would eliminate any adverse anti-selection from individuals who intend to commit suicide when they purchase a policy. More importantly, this may force the individual to seek appropriate treatment to deal with the problem that is causing their stress or depression. If you think that a client is stressed or depressed, and may be considering suicide, as their trusted adviser, you may want to ensure they obtain appropriate help. Also, be mindful that if the prevailing research is adopted by reinsurers and life insurance companies, in the future we may see longer exclusion periods being adopted for life insurance policies being issued in Australia. Existing retail policies will not be affected, but group insurance policies and new retail policies may adopt the longer exclusion period. Sources Causes of Death, Australia, 2008 Australian Bureau of Statistics 2. Suicide Prevention Australia suicideprevention.com.au 3. Impact of Suicide Exclusion Periods (2010) Australian Institute of Health & Welfare Australia s Health UpdateMagazine

9 Why choose an indemnity style income protection policy? When it comes to income protection policies, agreed value policies provide certainty at claim time, which some clients prefer to the variability associated with indemnity style policies. However, here are seven key reasons why an indemnity style policy is appropriate for some clients. 1 In many cases there is a price differential between an agreed value and indemnity policy. Normally indemnity policies are per cent cheaper than agreed value policies; savings which may mean the difference between a client having cover or not having cover. 2 There are some clients who have large amounts of investment income, or income from other sources that would support them in times of injury or illness. For clients who self-insure, a large proportion of income may not require an agreed value policy and an indemnity policy would be able to supplement their income in times of need. 3 Some clients want an agreed value policy, but can t afford the entire premium. In this case, the client can split the policy i.e. insure some of their income with an agreed value policy for their must have income (mortgage etc.) the rest of their income is covered by an indemnity policy. 4 SMSF or super is a big reason to look at indemnity. Inside superannuation, agreed value policies have a couple of potential difficulties. If the client has changed jobs and is not earning the same income, then there is a potential (if the income has dropped by 25 per cent or more) that the entire ensured amount will not be released from the fund under an agreed value policy. Under this scenario of an agreed value policy in super, you would consider whether the entire premium would be tax deductible under the SIS provisions. An indemnity product in super more closely aligns with the SIS and tax laws, thus making it easier to meet conditions of release and obtain full tax deductibility for the fund. 5 For individuals who have a steady job with predictable wages, an indemnity income protection policy may be sufficient. The reason people choose agreed value policies is that they may be off work (unemployed, sabbatical, maternity leave) or have variable income (self-employed). Where individuals have a steady job with predictable wages, it may not be necessary to incur the additional cost associated with agreed value policies. 6 The features and ancillary benefits that are associated with an indemnity policy are the same as an agreed value policy. The only difference between them is the calculation of monthly benefits. If the client s income has not gone down since they took out the policy, the monthly benefit will be the same under both policies (indemnity and agreed value). 7 Indemnity policies normally do not require financial verification (tax returns etc.) at time of policy application, only at time of claim. Indemnity policies will require a statement of income but not verification; this allows indemnity policies to get through underwriting quicker as there is less financial underwriting involved (same medical underwriting). Indemnity income protection policies may offer a good alternative for clients and should be considered in the specific circumstances listed above. Jeffrey Scott, Executive Manager InsuranceTech, CommInsure UpdateMagazine 9

10 Bridging the insurance gap: lessons from the US People often procrastinate when it comes to taking out life insurance. By understanding what motivates consumers to start shopping for this cover and what experiences they find most useful, advisers can reach out to consumers at the optimal moment with the right messages. Find out how in the latest research from US agency LIMRA. Life insurance shopping triggers Life event triggers 41 per cent of life insurance shoppers, as found in the US survey, are most influenced to start shopping by life events especially change in marital status, having or adopting a child, and the death of a relative or close friend. Gen Y are the group most likely to seek out life insurance because they had children, married, or recently bought homes. Planning triggers One fourth of life insurance shoppers looked at buying life insurance because they thought they might need cover or they wanted to review their cover. Baby Boomers and the Silent Generation collectively, the over 45s were most likely to feel their cover needed review. Financial adviser intervention 25 per cent of life insurance shoppers consider life insurance because financial advisers initiate contact or suggest the need for life insurance. Younger life insurance shoppers are more likely than older counterparts to have met face to face with financial professionals while shopping for life insurance. But it is Baby Boomers and the Silent Generation who are most likely to list financial adviser contact among the top three reasons they have shopped for life insurance. Work-related triggers Almost one in four life insurance shoppers consider buying because they are offered coverage at work, lost their group life coverage, or started businesses. About one in 10 Gen Y, Gen X, and Baby Boomers shop for life insurance because employers offer coverage through the workplace. One in 10 Baby Boomer and Silent Generation shoppers were motivated to shop by losing group life at work. Family or friend intervention About one in 10 life insurance shoppers considered life insurance because parents suggested the need for life insurance or friends recommended advisers or financial advisers. Gen Y mentions the influence of parents and friends most. 10 UpdateMagazine

11 The events that most result in life shoppers taking out life insurance: Receiving substantial assets e.g. through an inheritance (75 per cent bought) Starting or expanding a business (79 per cent bought) Financial professional suggesting the need for life insurance (73 per cent bought) Life insurance offering through the workplace (73 per cent bought) Having or adopting a child (73 per cent bought) Marrying or divorcing (68 per cent bought) Buying a home (67 per cent bought). Almost nine in 10 life insurance shoppers gather some information while they are shopping for life insurance. Information gathering Almost nine in 10 life insurance shoppers gather some information while they are shopping for life insurance. They turn to financial professionals, friends, relatives, and their employers for information. They also seek information online, use books or magazines, and acquire information from television or radio. Those shopping for life insurance most often receive information from: Financial professionals One third received information from life insurance agents or brokers, 17 per cent from financial advisers, and 28 per cent from insurance companies. Online information The three in 10 shoppers who sought information online most typically got price quotes from aggregator sites, used specific company websites, or turned to general financial sites for information. Using social networking or blogs to gather information regarding buying life insurance is rare. Friends, relatives, parents Almost two in 10 shoppers seek information about life insurance from friends and relatives. Gen Y and Gen X are the most likely to seek the opinions of friends and relatives. Thirteen per cent of Gen Y spoke with their parents. It is important to give younger buyers time to get advice from trusted relatives or friends. Decisions consumers find difficult while shopping Many consumers struggle with different elements of the decision process when shopping for and buying life insurance. The types of tasks life insurance shoppers found the most difficult: Determining whether they were getting their money s worth (54 per cent) Understanding the policy details (54 per cent) Knowing how much insurance to buy (54 per cent) Determining which type to buy (51 per cent). Looking at the generations, younger shoppers struggle more than older shoppers do with making decisions about buying life insurance. Gen Y At least six in 10 have difficulty: determining how much to buy, understanding policy details, selecting a company to buy from, and determining whether they are getting their money s worth. They are more likely than older shoppers to be unsure whether they even need coverage. Advisers will need to take more time explaining life insurance terms and policy features to Gen Y prospects. Almost three quarters of them are first-time buyers that are likely to have limited knowledge regarding life insurance products. Gen X About six in 10 have difficulty: determining how much to buy, understanding policy details, and determining whether they are getting their money s worth. 57 per cent of Gen X are first-time buyers and don t have experience buying life insurance. Baby Boomer Baby Boomers appear to be the generation most committed to buying. Compared with younger and older generations, they have less difficulty deciding they need coverage and less difficulty determining whether it fits into their budgets. But about half of Baby Boomers need help to determine how much to buy and to determine whether they are getting their money s worth. Silent Generation Perhaps because the cost of life insurance will be the highest for this older group, they have difficulty with determining whether they can get their money s worth. Advisers might benefit by discussing cost versus value with older prospects. Shopping status effect on likelihood to buy Among the recent life insurance shoppers who actually bought life insurance, 39 per cent believe that someone in the household still needs life insurance. This implies that contacting customers who bought life insurance in the past two years about any additional needs represents a strong opportunity for additional sales. And what about those who shopped, but didn t buy? Seventy per cent of non-buyers are still deciding whether they are going to buy. Among those who are undecided, 79 per cent say they might buy life insurance in the next year. Life insurance advisers may be giving up on prospects too early in the process. Some consumers have told us that they don t like to buy at the first meeting, as they need time to digest the information before deciding. This is an abridged version of the February 2012 report Turning life insurance shoppers into buyers written by Cheryl D. Retzloff, ACS, LLIF, Senior Research Director, Markets Research, for LIMRA, US. For research findings on underinsurance in Australia, and to compare consumer attitudes and behaviours in our market, contact your Business Development Manager for details of the CommInsure Life Insurance Survey. UpdateMagazine 11

12 Make insurance pay off at tax time At this time of the year many clients are considering various ways to reduce their tax liability, yet many individuals are unaware of the tax benefits of having life insurance. Here we look at term insurance (death cover) and income protection insurance and their different tax treatment. One of the biggest advantages of having life insurance inside super is that you can use a tax deductible contribution (e.g. superannuation guarantee, salary sacrifice, or personal super contribution for self-employed individuals) to pay for the premiums. However, remember that concessional contribution limits were cut in half from 1 July For individuals aged under 50, the contribution limits are $25,000 per annum, while for individuals aged 50 and over, the limit is $50,000. These contribution limits include all contributions made to all superannuation funds in a financial year for both insurance and investment purposes. When considering income protection insurance outside super, the premiums are normally fully tax deductible There are four possible options when considering the funding of life insurance via superannuation: salary sacrifice in super with reduction in superannuation guarantee payments; salary sacrifice in super without reduction in superannuation guarantee payments; normal superannuation guarantee; and insurance outside of super (i.e. don t do it). Clients will need to check their employment agreements to ensure which option in the following tables are being implemented by their employer, and to determine if they will be better off or adversely affected by the type of contribution made to superannuation to pay for insurance. When considering income protection insurance outside super, the premiums are normally fully tax deductible if the life insured and the policy owner are the same person (s 8-1 ITAA 1997). Term and TPD insurance outside superannuation normally will not receive a tax deduction for premiums that are paid. 12 UpdateMagazine The next question is whether it is better for a client to hold their insurance inside or outside of super? The answer may surprise you. If we look at the tables below there are some interesting results. In Table 1, term insurance is more cost effective inside super if the client has a salary sacrifice arrangement in place. With no salary sacrifice arrangement there is a reduction in retirement contributions when term insurance is paid within super, but more cash in hand outside of super. In Table 2, income protection insurance outside super is just as cost effective as income protection inside super. In fact, in situations where there is no salary sacrifice arrangement in place and the income protection is paid within superannuation, the client is worse off in retirement savings, and in their overall financial position. Clients need to be careful when paying life insurance premiums. Not all premiums paid via superannuation are created equal. In certain circumstances (especially for income protection insurance) the client is better off paying for the premiums outside of superannuation. You should also consider the income tax implication of benefit payments. When a lump sum death benefit is paid from a super fund to the member, if the benefit is paid to a taxation dependant, then the entire amount is tax free. There may be a tax liability in other situations. The amount of tax depends upon the age of the member, service period start date, date of death, and who the beneficiary is. It should be noted that taxation dependants are different to superannuation dependants. Under taxation law, children over 18 are non-dependants unless financially dependent or can demonstrate an interdependency relationship.

13 Table 1 Term insurance Case study: Your client earns $100,000. He is a 40-year old male accountant and non-smoker. He purchased a term insurance policy with stepped premium, $1 million sum insured. The client has no other deductions and has private health insurance. Table 1 Insurance in super (salary sacrifice reduction in SG) Insurance in super (salary sacrifice No reduction in SG) Insurance in super (no salary sacrifice) Insurance outside super (ordinary) Gross salary $100,000 $100,000 $100,000 $100,000 Salary sacrifice $2,000 $2,000 NIL NIL SGC salary $98,000 $100,000 $100,000 $100,000 9% SGC $8,820 $9,000 $9,000 $9,000 Term insurance premium in ($2,000) ($2,000) ($2,000) NIL super Contribution tax (15%) ($1,323) ($1,350) ($1,050) ($1,350) A) Net contribution to $7,497 $7,650 $5,950 $7,650 super Net salary $98,000 $98,000 $100,000 $100,000 Term insurance premium NIL NIL NIL ($2,000) outside super Net taxable income $98,000 $98,000 $100,000 $98,000 Tax paid ($24,210) ($24,210) ($24,950) ($24,210) Medicare levy ($1,470) ($1,470) ($1,500) ($1,470) B) Total cash in hand $72,320 $72,320 $73,550 $72,320 C) Net benefit (A+B) $79,817 $79,970 $79,500 $79,970 Table 2 Income protection insurance Case study: Your client earns $100,000. He is a 40-year old male accountant and non-smoker. He purchased an income protection policy with stepped premium, 30-day waiting period and benefits paid to age 65. This policy has no ancillary benefits. The client has no other deductions and has private health insurance. Table 2 Insurance in super (salary sacrifice reduction in SG) Insurance in super (salary sacrifice No reduction in SG) Insurance in super (no salary sacrifice) Insurance outside super (ordinary) Gross salary $100,000 $100,000 $100,000 $100,000 Salary sacrifice $2,000 $2,000 NIL NIL SGC salary $98,000 $100,000 $100,000 $100,000 9% SGC $8,820 $9,000 $9,000 $9,000 Income protection premium in ($2,000) ($2,000) ($2,000) NIL super Contribution tax (15%) ($1,323) ($1,350) ($1,050) ($1,350) A) Net contribution to super $7,497 $7,650 $5,950 $7,650 Net salary $98,000 $98,000 $100,000 $100,000 Income protection insurance NIL NIL NIL ($2,000) outside super Net taxable income $98,000 $98,000 $100,000 $98,000 Tax paid ($24,210) ($24,210) ($24,950) ($24,210) Medicare levy ($1,470) ($1,470) ($1,500) ($1,470) B) Total cash in hand $72,320 $72,320 $73,550 $72,320 C) Net benefit (A+B) $79,817 $79,970 $79,500 $79,970 NB: All calculations are based upon taxation rates. Assumes resident individual. UpdateMagazine 13

14 Update contacts NSW/ACT Sales Office Commonwealth Bank Place, Level 7 11 Harbour Street, Sydney NSW 2000 Phone Fax Qld Sales Office Level 8, 240 Queen Street, Brisbane Qld 4000 Phone Fax State Manager NSW/ACT Julie James Mobile Phone julie.james@comminsure.com.au State Manager Qld Lachlan Macdonald Mobile Phone lmacdonald@comminsure.com.au Business Development Manager NSW/ACT Justin Lambert Mobile Phone jlambert@comminsure.com.au Business Development Manager Qld Martin Chinnery Mobile Phone mchinnery@comminsure.com.au Business Development Manager NSW/ACT Kathryn Williamson Mobile Phone kwilliamson@comminsure.com.au Business Development Manager Qld Anna Longden Mobile Phone alongden@comminsure.com.au Business Development Manager NSW/ACT Matt Nott Mobile Phone mnott@comminsure.com.au Business Development Manager NSW/ACT Dave Ghilks Mobile Phone dghilks@comminsure.com.au 14 UpdateMagazine

15 Vic/Tas Sales Office Level 4, 385 Bourke Street, Melbourne Vic 3000 Phone Fax Business Development Manager SA/NT Jeff Boden Mobile Phone Acting State Manager Vic/Tas Peter Davidson Mobile Phone WA Sales Office Level 4, 55 St Georges Terrace, Perth WA 6000 Phone Fax Business Development Manager Vic/Tas Voula Makris Mobile Phone State Manager WA Rob McPherson Mobile Phone Business Development Manager Vic/Tas Tom Cincotta Mobile Phone Business Development Manager WA Leah Holmes Mobile Phone Business Development Manager Vic/Tas Jamie Fellows Mobile Phone SA/NT Sales Office Level 4, 100 King William Street, Adelaide SA 5000 Phone Fax Acting Head of Adviser Distribution Mark Sheldon Mobile Phone State Manager SA/NT Michael O Grady Mobile Phone mogrady@comminsure.com.au UpdateMagazine 15

16 Of course he s happy. He s on the CommInsure LifeStyle Support System. The LifeStyle Support System protects the life your clients love the lifestyle they ve worked hard to create. It s a new way of looking at income protection, and we ve got all the tools to help you sell it in the lead up to financial year end. CommInsure has a strong foundation, underpinned by our genuine focus on providing your clients with a personalised claim experience and quick payment when they need it most. Make CommInsure your clients LifeStyle Support System. For details, talk to your CommInsure Business Development Representative, call or visit Important information: CommInsure is a registered business name of The Colonial Mutual Life Assurance Society Limited ABN AFSL CIL