Information Guide Booklet Life Insurance This Information Guide booklet provides you with general information only. It will also help you to better understand any recommendations we have made for you.
Information Guide Life Insurance January 2013 About Us Newealth is an independently owned Australian private company. Not being owned by any banks, life insurance companies or fund managers has permitted Newealth to better service clients, identify strategies and recommend solutions that meet their needs. This Information Guide provides you with general information only about the advantages and disadvantages of holding retail life insurance. It will also help you to better understand any recommendations we have made for you in this regard. Newealth will provide you with a product disclosure statement in the event that any specific product recommendations are made. This is an important document that you should read before making any decisions to act on the recommendations. Why purchase life insurance? We take risks in life every day. You've been that person who runs across the road right next to the pedestrian crossing at least once. You ve probably driven a car. You might fly on an airplane. You probably drink alcohol or at least you used too. Maybe you smoke. You've no doubt eaten take away food that may be unhealthy. A cash payment resulting from a life insurance policy following a death or disability can for example help: Replace income with a non-taxable lump sum, Reduce the financial/psychological burden on a family of having to continue without the main breadwinner, Pay for children s education, Repay the mortgage, investment loans and other debts, Pay for funeral expenses, pay the capital gains tax as a result of having to realise assets for cash due to death or disability. Once the application for life insurance cover has been accepted by the insurer then it cannot be cancelled for so long as the premiums are paid so any changes in the life insured s health will not have any impact on the policy coverage or premiums. Applicants must however comply with a statutory duty to disclose all relevant matters to the insurer when applying for cover. Newealth will assist you in this process.
Most people do not purchase life insurance because they underestimate the probability of death or disability. Some startling facts show that reality is quite different: Over 90% of deaths in Australia are from the Big 3 diseases - cancer, stroke and cardiovascular disease. (Pfizer Australia Case Study Series 2006.) Almost over 80% of the adult Australian population has at least one of the risk factors that lead to the Big 3 diseases: tobacco smoking, physical inactivity, high blood pressure, obesity, high cholesterol. (Pfizer Australia Case Study Series 2006.) Over 60% of those aged 60 or more exhibited the highest relative levels of diabetes. (Pfizer Australia Case Study Series 2006.) Over 85,000 Australians are diagnosed with cancer every year and 35,000 are killed. (Pfizer Australia Case Study Series 2006.) It was estimated that 3.2 million Australians or 17% of the population has cardiovascular conditions. The same disease killed nearly 50,000 in 2001. (Pfizer Australia Case Study Series 2006.) Whether you have dependents of your own or you would become dependent on someone if you lost your job due to a serious illness or injury, it is time to look into insurance. Death Only Insurance Death only insurance (also referred to as Term insurance) pays a lump sum upon the death of the life insured. In the event of the persons death the lump sum could assist in paying off any outstanding debts such as a mortgage. The amount of death only insurance should usually be in excess of debts to assist your family especially if you have children. Payment is made to the legal owner of the policy who need not have any relationship to the life insured. A beneficiary(ies) can be nominated to receive the proceeds even though the beneficiary is not a party to the contract or has any relationship to the life insured or policy owner. E.g. a charity. Generally no insurance is paid if death occurs from suicide or intentional self-inflicted injury within 13 months of the commencement or reinstatement date (if the policy has lapsed) of the policy. Premiums can become more expensive as your age increases.
Typically, the policyholder can be the spouse, a business partner or an employer or the life insured. Upon death of the insured, the lump sum is paid to the policy owner (or the insured's estate if self owned) and can be used in any way chosen. For most policies payment will also occur in the event of a terminal illness. A terminal illness means that you have been diagnosed by a specialist medical practitioner as having a life expectancy of 12 months or less due to an illness, regardless of any treatment that may be undertaken. Generally there is no cash back component in the policy i.e. if you do not claim, you do not get anything back in return for the premiums that you have paid. Cover will expire at a certain age in some cases as late as the life insured s 99th birthday. Total & Permanent Disablement Insurance (TPD) TPD can be taken as a stand alone policy but more commonly it is taken as an additional benefit with Death Only. It provides a lump sum payment in the event of the life insured becoming totally and permanently disabled. You will receive a lump sum payment if you are unable ever return to work or lose a combination of limbs or sight. Benefits not paid unless the nature of the disability is permanent as well as total in nature. Generally no benefit is paid if the disability occurs as a result of a self inflicted injury. Does not cover major health trauma unless the result of that trauma is total and permanent disability. Trauma Insurance Trauma insurance pays a lump sum payment for those who suffer a major health trauma and is paid on the actual occurrence and/or diagnosis of the incident. Benefits are usually paid out for a trauma within a set list of defined medical conditions covered by the policy.
There are basic trauma policies and there are extended trauma policies that cover a greater number of events. Lump sum payment on the diagnosis of one of the listed medical conditions. Paid on the diagnosis of a terminal illness. Buyback options can give you the ability to automatically reinstate your Death cover where it has been reduced by the amount of a Trauma claim payment. Premiums become more expensive as your age increases and in the older age groups can become prohibitive. There is no cash back component in the policy i.e. if you do not make a claim, you will not get anything back in return for the premiums that you have paid. Income Protection Is designed to replace some of your income if you are unable to work due to sickness or injury. Your most valuable asset is the ability to produce an income during your working life and this should be protected. The policies can be structured in several different ways to suit your needs with additional options and benefits such as increasing claim payments in line with inflation. You can also cover your business expenses if you are in business. Replaces up to 75% (and higher in some cases) of your monthly income so that in the event of prolonged illness, income needs can continue to be met. The definitions of not working are very reasonable, often if you cannot perform just one of your normal work duties the claim will still be paid. Can also pay a benefit for specific injuries regardless of whether you are working or not. The amount of monthly benefit will be reduced by any amounts that might be paid to you from other sources as a result of the injury or disability that you are claiming for. For example, if injured at work then the monthly benefit will be reduced by any amounts that are paid to you by your employer as a result of the injury. Does not provide a large tax free lump sum benefit. Any benefit paid is likely to form a part of your assessable income for taxation purposes. (Check with your tax adviser.)
Importantly, the cost of income protection is generally fully tax deductible. The cost varies significantly based upon the waiting period, benefit period, amount of income insured and the insured occupation. How are insurance premiums calculated? Applying for insurance means you are outsourcing risk to a insurance company. In order for the underwriters to decide whether to take on your risk (i.e. insure you), they take into consideration four main factors: 1. Your age- The older you are when you apply, the more likely you are to claim and therefore the higher the premium. 2. Your Gender - Females generally live longer than males and so usually pay lower premiums for death cover. However statistics show that they are more likely to suffer a disability event and so usually pay more for income protection insurance. 3. Smoker or non-smoker- Smokers will pay a higher premium due to being more likely to suffer a critical illnesses. 4. Amount of cover- - Larger amounts of cover will cost more in premiums but often discounts are available to reflect the fixed costs in maintaining the policy.. Definitions Stepped premiums means that the premium increases with the life insured person s age. The premiums will also increase automatically in line with the cover if it is linked to inflation. Level premiums mean that the premium rates remain the same. The insurer can only increase the premium rates if it does so for all level premium policies. Initially level premiums will be higher than stepped premiums in the early years of the policy but over the long-term will generally cost less. The premiums will increase automatically in line with the cover if it is linked to inflation. Indemnity Policy means that if your income reduces in the future the policy will only pay 75% of your lower income level and not the monthly benefit amount. Premiums for Indemnity cover are lower than Agreed Value premiums. Agreed Value Policy requires you to provide financial evidence to prove your income at the time of application and the insurance company agrees to insure you for the monthly benefit. This means that in the future, regardless whether your income reduces you will be paid the agreed monthly benefit amount in the event of a claim. An Agreed Value policy will provide certainty at time of claim.
How much insurance do I need? A well chosen life insurance plan should ensure you will be able to afford to maintain your lifestyle and to provide a financial cushion for your family in the event of an accident, serious illness or death. It is important that you engage the advice of an expert in determining the types and levels of cover. Newealth would be happy to assist you in these matters. Review Your life insurance needs should be reviewed at a minimum of once per annum or more often on the occurrence of a life changing event such as the birth of a child or entering into a mortgage.