Income Care with either monthly or lump sum benefits

Income Care with either monthly or lump sum benefits

Important information This advice has been prepared by CommInsure, a registered business name of The Colonial Mutual Life Assurance Society Limited ABN 12 004 021 809 AFSL 235035 (CMLA). The examples and case studies in this brochure are hypothetical stories based on our understanding of typical customers and are included for illustrative purposes only. The names and identifying features do not reflect any particular person. As this advice has been prepared without considering your objectives, financial situation or needs, you should, before acting on the advice, consider its appropriateness to your circumstances. The taxation information is of a general nature only and should not be regarded as specific advice. It is based on the continuation of present taxation laws, rulings and their interpretation as at the issue date of this brochure. You should seek independent professional tax advice before making any decision based on this information. Total & Permanent Disability Cover and Income Protection are components of CommInsure Protection. The CommInsure Protection Product Disclosure Statement (PDS) is issued by CMLA and The Colonial Mutual Superannuation Pty Ltd ABN 56 006 831 983 AFSL 235025, the Trustee of the Colonial Super Retirement Fund ABN 40 328 908 469 (the Fund). CMLA is responsible for the administration of the Fund and provides insurance benefits to the Fund as insurer. The CommInsure Protection PDS is available from your financial adviser, by calling 13 10 56 or from comminsure.com.au and should be considered in making any decision about these products. CMLA and the Trustee are both wholly owned but non-guaranteed subsidiaries of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945. CommInsure 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. We do not charge you any additional fees for the products that we provide to you with any general advice. Staff within CommInsure who provide a service do not receive specific payments or commissions for the giving of that service but do receive salaries. Bonuses and other benefits may also be paid by us. You may receive advice in relation to the products we offer from financial advisers that do not work for CommInsure. These advisers may receive remuneration from us. Your adviser may be required to set out the remuneration and commissions they receive in their financial services guide or statement of advice. BCB

Income protection insurance is a valuable form of cover that provides up to 75 per cent of your income if you are sick or injured and cannot work. Premiums are generally tax deductible. Benefits are normally paid monthly and like your income, these benefits are subject to tax. Receiving monthly benefits makes sense if the claim period is short and you eventually return to work, as it ensures you still have money regularly coming in. But if your sickness or injury is serious and you will never return to work then monthly benefits may not be the best way to receive that money. CommInsure s Income Protection is different to other income protection policies due to our unique, no additional cost feature that gives you the choice on how you would like to receive your benefits for a serious claim. If you are unable to ever return to work you can receive your benefit as: an ongoing monthly benefit subject to tax or a lump sum payment, which we can pay tax free. You decide which option to take. If your claim is not serious and you eventually return to work, we (like most insurance companies) will pay the benefit only on a monthly basis. 1

When does the lump sum option apply? If you have an accident, or suffer from an injury or illness that means you become totally and permanently disabled (TPD) and you are unable to return to work, then you can have the choice to take either an ongoing monthly benefit or the immediacy of a lump sum payment. 1 In certain TPD cases, if you become totally and permanently disabled as a result of 1 of 19 defined medical conditions, your lump sum payment will be calculated at 100 per cent of your income. The 19 defined medical conditions are cardiomyopathy, primary pulmonary hypertension, major head trauma, motor neurone disease, multiple sclerosis, muscular dystrophy, paraplegia, quadriplegia, hemiplegia, diplegia, tetraplegia, dementia and Alzheimer s disease, Parkinson s disease, blindness, loss of speech, loss of hearing, chronic lung disease, severe rheumatoid arthritis or loss of limbs and/or sight. 1 Referred to as Permanent Disablement cover option in CommInsure s Income protection. 2

What s the difference between monthly benefits and a lump sum? Monthly benefit applies to all claims Tax to be paid on benefits 100% of your premium is tax deductible* Provides regular cash flow Ongoing claim forms and possible medicals and doctors reports could be required Can meet loan repayments Monthly benefits help with budgeting Monthly benefit could be eroded by unanticipated medical costs Lump sum option applies if you become TPD Tax free benefits* 90% of your premium is tax deductible* Lump sum could be invested to create ongoing income Once lump sum paid, no more ongoing paperwork required Could pay off large debts and mortgage to reduce worries and save on interest costs Could require financial advice on investing your lump sum and generating an additional income stream Lump sum can provide a buffer to cover large costs such as home and car modifications or non-claimable medical and treatment costs * If cover is outside super and cash back option not selected. 3

How do I apply for this option? To select the lump sum option you must tell us at time of application and this is recorded in your premium quote. If you do not choose this no additional cost option when you apply for cover then at claim time a monthly benefit will be the only type of payment offered. How does tax apply? If you select at time of application to receive only monthly benefits for all claims, then 100 per cent # of the premium is tax deductible. However, if you select to have the choice of monthly benefit or a lump sum, then 90 per cent # of premiums are tax deductible*. The remaining 10 per cent # of the Income Protection premiums are deemed to be cost related to the tax free lump sum benefit so are not tax deductible. Each year in July we will send you a letter advising the amount to put down as a deduction in your tax pack. Even though your premiums tax deductibility reduces slightly, it could mean a large tax saving if a lump sum is paid tax free. Please see the case study that explains how this works. * Exclusive ruling sought by CommInsure. ATO tax ruling CR2005/15, 30 March 2005. # Cash back option not selected. 4

How do we calculate the lump sum amount? The lump sum benefit is calculated as the lesser of either: $3 million or An amount equal to an age-based multiple of the annualised monthly benefit. The lump sum benefit = Annualised monthly benefit* (i.e Monthly Benefit x 12) x Age-based multiple If you have selected the super continuance monthly benefit option we also add this to your monthly benefit before applying the formula. * Annualised monthly benefit is divided by 0.75 if the permanent disablement benefit is classified as a serious medical condition. Age based multiple is: Age next birthday Multiple Less than 40 years 15 40 44 inclusive 13 45 49 inclusive 11 50 55 inclusive 9 56 or more 65 minus your age next birthday when the lump sum benefit becomes payable. If the age based multiple is a nil or negative amount, no lump sum benefit is payable. Key benefits With CommInsure s Income Care, when you select the tax-free lump sum benefit (in the event of TPD) you are able to: Certify your disability just once at claim time, and avoid reassessment of disability every month. Keep the payment, regardless of any future medical advancement rendering you healthy and capable of working. Perhaps invest your lump sum payment and generate an additional income stream. 5

Edward s Story Edward (35) was an IT consultant at a large investment bank earning $142,000 p.a. His financial adviser recommended and put in place a wealth protection plan, including $1million of life insurance. He also took out income protection insurance (with permanent disablement option) of $8,875 monthly benefit with a $550 superannuation benefit, a three month waiting period and benefit period paid to age 65. His income protection premiums were: Annual Income Care premium Monthly benefit Super continuance 6 $1,286.01 $8,875 $550 Unfortunately, Edward was involved in a serious motor vehicle accident while driving home from work one night. Edward suffered a major head trauma, multiple fractures and a spinal injury which left him a quadriplegic. Edward s insurance case manager felt that it would take approximately three months in order to assess the claim fully and organised for a bed confinement benefit payment of $26,625 to be paid to Edward. Once the claim was finalised Edward received a lump sum (TPD) payment $2,262,000, the whole of which was tax free. These substantial funds helped cover the medical costs and rehabilitation care as a result of his paralysis. Importantly, he was also able to pay off the mortgage and commence modifications to the family home.

Edward s details Age = 35 years Age-based multiple = 15 Monthly benefit = $8,875 Super continuance = $550 To choose or not to choose the permanent disablement option a premium and benefit payment comparison Benefit Permanent disablement option not chosen Monthly benefit Permanent disablement option chosen Monthly benefit Lump sum payment Monthly sum insured = $8,875 Super continuance = $550 1 Total monthly benefit = $9,425 Net benefit = $6,743 2 (approximate net of tax) = $8,875 = $550 1 = $9,425 = $6,743 2 (approximate net of tax) = $2,262,000 tax free Premium payable = $1,286.01 = $1,286.01 = $1,286.01 Net premium payable (after tax deduction) = $778.04 3 = $828.83 4 = $828.83 4 If Edward had chosen not to take the TPD option, his net premium after his tax deduction would have been $50.79 per year less than if he chose the TPD option. But by choosing the TPD option, he was able to choose to take his benefit as a monthly, taxable payment or as a tax-free, lump sum payment. He chose the latter; $2,262,000 tax free. 1 This amount is paid directly to Edward s nominated superannuation provider. 2 Tax calculation is an estimate only and assumes marginal tax rate (inclusive of Medicare Levy) applied. If the individual is a resident, tax-free threshold applies and no tax offsets claimed. CMLA does not deduct tax from monthly income care payments but they do form part of your assessable income and you should ensure that you make appropriate provision to pay tax when you lodge your tax return. 3 The individual s marginal tax rate is assumed to be at 39.5% (inclusive of Medicare Levy). 4 The premium is assumed to be 90% tax deductible. 7

Why CommInsure? CommInsure helps to protect the lifestyles of Australians. We offer an extensive range of insurance products at affordable premiums with valuable rewards to loyal policyholders. Our roots within the Australian insurance industry go back well over 135 years. We have a fresh approach to insurance through innovation, simplicity, competitive products and responsive service. We have received a number of awards recognising our excellent products and customer service. Our awards include: Life Insurance Company of the Year Australia and New Zealand Institute of Insurance and Finance Awards 2010, 2007 and 2005 Life Company of the Year Plan for Life & Association of Financial Advisers 2009 and 2007 Trauma Insurance Award, Winner Plan for Life & Association of Financial Advisers 2009, 2008 and 2007 CommInsure s claims philosophy is simple: we pay all genuine claims promptly and efficiently. For the 2009 calendar year, the following claims were paid to our customers: Life Care/Terminal illness $276.1 million TPD/Trauma $183.8 million Income Protection $108.6 million. That s approximately $10,930,000 1 every week. 1 Figures are retail and group combined. 8

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