How To Save 50% On Your Life Insurance Premiums P: 02 9146 6131 M: 0400 877 174 F: 02 9146 6132 E: david@smartfinancialadvice.com.au Smart Financial Advice Pty Ltd ABN 31 158 496 309 Corporate Authorised Representative of AMP Financial Planning Pty Ltd AFS Licence No. 232706 www.smartfinancialadvice.com.au
How To Save Over 50% On Your Life Insurance Premiums Life insurance is important, but with so many other bills to pay and the rising cost of living, how can you get the life insurance cover you need, but set it up in a way that could save you hundreds, or even thousands of dollars? That's what I'll show you in this report, some simple and proven strategies that can save you a lot of money on your life insurance premiums. Using these strategies you can: Purchase life insurance tax effectively Get the government to help pay for your insurance premiums And more After reading this report if you have any feedback, or you would like us to help you set up or review your life insurance so that you can save money on your premiums, get in contact with us: P: 02 9146 6131 E: info@smartfinancialadvice.com.au W: www.smartfinancialadvice.com.au Regards, David Deegan Financial Adviser Smart Financial Advice Smart Financial Advice (02) 9146 6131 www.smartfinancialadvice.com.au 2
Strategy 1: Salary Sacrifice Your Life Insurance Did you know that if you are an employee you can salary sacrifice into your super fund, and then get your super fund to pay for your life insurance? What are the benefits of doing it this way? A salary sacrifice into super comes from pre-tax income. This means that you don't have to pay tax on the income used to contribute to super, and pay for your life insurance premiums. Let's look at an example to see how this works: Michael and Sarah are married with two young children. Their financial adviser recommends that Michael take out $700,000 in life insurance, so that if Michael dies Sarah will have enough money to pay off their debts, and there will be money left over to provide an income for Sarah and the children. Michael has an income of $65,000 p.a. which means his marginal rate of tax is 34.0% including medicare levy. The premiums for Michael's life insurance in the first year are $582.45. Here's a comparison of Michael purchasing the life insurance as an ordinary policy, compared with purchasing it via his super fund: Ordinary Life Insurance Policy Life Insurance Premium $582.45 $582.45 Tax at 34.0% $300.05 $0.00 Total Cost (pre-tax) $882.50 $582.45 Super Life Insurance Policy This saves Michael $300.05 pa on his life insurance premiums (pre-tax). Although this may not seem like much to begin with, over 20 years Michael will save $19,812.99 1. 1 Assumes Michael remains on a marginal tax rate of 34.0% including medicare levy Smart Financial Advice (02) 9146 6131 www.smartfinancialadvice.com.au 3
Strategy 2: Get The Government To Pay For 1/3 Of Your Life Insurance Sarah has reduced the number of days that she works whilst she is looking after their young children. From her part time work Sarah earns an income of $20,000 p.a. Because Sarah earns less than $46,920 she is able to receive the government co-contribution. The government co-contribution is where for every after-tax dollar Sarah contributes to super, the government will also contribute fifty cents 2, up to a maximum $500 p.a. Sarah can purchase her life insurance in super the same as Michael did in Strategy 1, but instead of making salary sacrifice contributions to super Sarah makes personal after-tax contributions to super. This means Sarah only has to contribute two thirds of the cost of her life insurance, and the other one third will be paid from the government co-contribution 3. Sarah's financial adviser has recommended that Sarah take out $500,000 life insurance, and the premiums in the first year are $358.48. Here's a comparison of Sarah purchasing the life insurance as an ordinary policy, compared with purchasing it via her super fund: Ordinary Life Insurance Policy Life Insurance Premium $358.48 $358.48 Government Co-Contribution $0.00 $119.49 Sarah's Contribution $358.48 $238.99 Super Life Insurance Policy This saves Sarah $119.49 pa on her life insurance premiums. Although this may not seem like much to begin with, over 20 years Sarah will save $6,109.88 4. 2 Based on proposed changes to the co-contribution, as at 1 August 2012 the following page on the ATO website noted these changes were not yet law: http://www.ato.gov.au/individuals/content.aspx?menuid=0&doc=/content/00200258.htm&page=6&h6 3 Using projections, in Year 17 to 20, premiums will increase to more than $1,000. At this time, Sarah can use the government co-contribution to pay $500 towards her insurance premiums and the remaining amount will be paid by her. 4 Assumes that Sarah remains eligible for the maximum co-contribution of $500 pa. Smart Financial Advice (02) 9146 6131 www.smartfinancialadvice.com.au 4
Strategy 3: Let Your Super Fund Pay For Your Life Insurance Did you know that you can have your life insurance premiums paid for from the balance of your super fund? In Strategies 1 and 2 Michael and Sarah have purchased their life insurance in their super funds. If money was really tight, or they had other priorities such as paying off debt, Michael and Sarah could let their super fund pay for their life insurance premiums and not worry about contributing Michael's salary sacrifice, or Sarah's personal contributions. This frees up money for Michael and Sarah, but still allows them to have the insurance cover they need. It is important to keep in mind though that this would have an impact on their future retirement savings. Smart Financial Advice (02) 9146 6131 www.smartfinancialadvice.com.au 5
Strategy 4: Lock In The Cost Of Your Life Insurance Premiums So They Don't Increase With Age Most life insurance policies are sold as 'stepped premium' policies which means that they increase every year the older you get. 'Level premium' policies are more expensive to begin with, but allow you to lock in the cost so that the premiums stay the same as you get older. Let's look at an example: In Strategy 1 Michael purchases $700,000 life insurance in his super fund on stepped premiums, for $582.45 p.a. These premiums will continue to increase each year. If Michael purchases the same life insurance on level premiums the cost will be $1,233.45 p.a. but the difference is that these premiums are 'locked in' and will stay the same 5. Below is a chart showing a comparison over time between stepped and level premiums. $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Stepped Premium Level Premium After 20 years the total amount of premiums Michael will have paid comparing both stepped and level premiums are: Amount Total Stepped Premiums $38,460.31 Total Level Premiums $25,131.05 Savings ($) $13,329.26 Savings (%) 34% 5 Whilst the premiums remain the same, the plan fee is indexed over time. Smart Financial Advice (02) 9146 6131 www.smartfinancialadvice.com.au 6
Combining These Strategies: How To Reduce Your Life Insurance Costs By Over 50% As you can already see these strategies individually can save hundreds, and even thousands of dollars. Now let's review the savings if Michael and Sarah were to combine these strategies. Strategy Combination - Michael Michael uses the following strategies together to purchase his life insurance: Strategy 1: Salary Sacrifice Your Life Insurance Strategy 4: Lock In The Cost Of Your Life Insurance Premiums So They Don't Increase With Age Let's review how much Michael will save by combining these strategies: Ordinary Life Insurance Policy - Stepped Premiums Super Life Insurance Policy - Level Premiums Life Insurance Premiums (over 20 years) $38,460.31 $25,131.05 Tax at 34.0% $19,812.99 $0.00 Total Cost (pre-tax) $58,273.19 $25,131.05 By combining these strategies Michael saves $33,142.14 (pre-tax) or 56% of the overall cost of his life insurance. Smart Financial Advice (02) 9146 6131 www.smartfinancialadvice.com.au 7
Strategy Combination - Sarah Sarah uses the following strategies together to purchase her life insurance: Strategy 2: Get The Government To Pay For Half Of Your Life Insurance Strategy 4: Lock In The Cost Of Your Life Insurance Premiums So They Don't Increase With Age Let's review how much Sarah will save by combining these strategies: Ordinary Life Insurance Policy - Stepped Premiums Super Life Insurance Policy - Level Premiums Life Insurance Premiums (over 20 years) $20,240.80 $14,064.05 Government Co-Contribution $0.00 $4,688.02 Sarah's Contribution $20,240.80 $9,376.03 By combining these strategies Sarah saves $10,864.77 or 53% of the overall cost of her life insurance. Smart Financial Advice (02) 9146 6131 www.smartfinancialadvice.com.au 8
Get In Contact Now For Your Free Life Insurance Strategy Session The above examples show how the right strategies can help you save hundreds, or even thousands of dollars on your life insurance premiums. Of course, your situation will be different from the examples shown here, but they still illustrate what is possible. If you're ready to get started why not get in contact with us now for a Free Life Insurance Strategy Session where we can begin to help you develop a plan tailored specifically to your situation to help you benefit from these strategies. How Does It Work? Step 1: Initial Consultation The Life Insurance Strategy Session is a 45-60 minute consultation. During the consultation you will have the opportunity to ask questions, and we will take the time to learn about your situation, and any issues or concerns you might have. During the consultation we will discuss: How the strategies in this report can apply to your situation What superannuation funds you currently contribute to Insurance policies that you currently own And more Step 2: We Develop Strategies That Can Save You Money After our consultation we will review your details and start to develop potential strategies and options that suit your situation. We will get insurance quotes for you from a wide range of insurance companies to help you get the best deal. Then we crunch the numbers to attach a realistic dollar value to each potential strategy and option. Smart Financial Advice (02) 9146 6131 www.smartfinancialadvice.com.au 9
Step 3: Setup Your Insurance Cover After we have developed your strategies we arrange a follow up session with you to discuss our findings. During this session we will explain how the strategies work and how they apply to your situation. You will have the opportunity to ask as many questions as you like. If you want to go ahead and setup your life insurance we will do all of the paperwork for you and help you with arranging your insurance cover. How Much Does It Cost? The Life Insurance Strategy Session is Free, and there is no risk or obligation of any kind. Should you want some help to setup or review your life insurance we are paid by the life insurance company you choose. This means that you only pay (or your super fund pays) for the premiums for your insurance cover. Book Your Free Life Insurance Strategy Session Today To arrange your Free Life Insurance Strategy Session call the office today on (02) 9146 6131, or email david@smartfinancialadvice.com.au. We look forward to talking with you. Regards, David Deegan Financial Adviser Smart Financial Advice www.smartfinancialadvice.com.au Important Disclaimer: This information is not to be taken as financial advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should be not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you obtain your own independent professional advice before making any decisions in relation to your particular requirements or circumstances. Smart Financial Advice (02) 9146 6131 www.smartfinancialadvice.com.au 10