Question regarding Life Insurance, TPD, Trauma and IP

[MelbGal]

Ok im no expert but this is what i have been told in the past...

Bump up your super insurance if you can (make sure you have a good policy) as your premiums are paid with your pre-tax income rather than after-tax income. Also elect your beneficiaries binding if you don't want any delays later.

If you need additional coverage then get another policy to cover further funds and anything not covered by your super policy.

See a financial planner for advice if you need it - I think some can only sell their own suite of products (best to check).

 

[Aaron_C]

Bump up your super insurance if you can (make sure you have a good policy) as your premiums are paid with your pre-tax income rather than after-tax income. Also elect your beneficiaries binding if you don't want any delays later.

Problem with this is that the money is also trapped in super. Now this isn't such a big deal for life insurance (because if you die, your super becomes part of your estate anyway) but it does impact TPD and income protection because you aren't dead.

 

[DaveM]

Problem with this is that the money is also trapped in super. Now this isn't such a big deal for life insurance (because if you die, your super becomes part of your estate anyway) but it does impact TPD and income protection because you aren't dead.

THat and do you really want to erode the balance of your super? Small amounts early on make for huge balance differences at retirement.

 

[MelbGal]

THat and do you really want to erode the balance of your super? Small amounts early on make for huge balance differences at retirement.

Can make extra contributions up to the threshold at 15% tax to offset any reduction.

 

[Aaron_C]

Can make extra contributions up to the threshold at 15% tax to offset any reduction.

Yes but David and I are self employed so our super balances aren't as healthy as PAYG workers

 

[MelbGal]

Problem with this is that the money is also trapped in super. Now this isn't such a big deal for life insurance (because if you die, your super becomes part of your estate anyway) but it does impact TPD and income protection because you aren't dead.

Good point - as mentioned before, suggest OP considers if the policy covers his circumstances. Get a separate policy to cover the rest.

Ps - the above advice was given by a Financial Planner.

 

[DaveM]

Can make extra contributions up to the threshold at 15% tax to offset any reduction.

Whch is good... trouble is many people see super as some abstract money pot which is not really theirs and are happy to whittle it away on insurances and so on without considering the end result.

 

[MelbGal]

Whch is good... trouble is many people see super as some abstract money pot which is not really theirs and are happy to whittle it away on insurances and so on without considering the end result.

He doesn't have to whittle down his balance if he is making personal contributions to his super to offset the cost of the premiums. These personal contributions are more than likely taxed at a lower rate (15%) than his personal income tax rate so he is getting a bigger discount on his premiums than paying with after tax pay.

As mentioned, he needs to check out his super policy and whether it covers the amount and circumstances that he needs (some are capped to a % of your salary) so he may still need to get another policy.

 

[DaveM]

He doesn't have to whittle down his balance if he is making personal contributions to his super to offset the cost of the premiums. These personal contributions are more than likely taxed at a lower rate (15%) than his personal income tax rate so he is getting a bigger discount on his premiums than paying with after tax pay.

I am agreeing with you not disagreeing

What I am trying to say is that many people use super for insurances etc and dont top it up and it makes a huge difference to the end value over 40 years. Using super for insurances has its places so long as the financial impacts of doing so are considered and appropriate top ups are done.

 

[MelbGal]

I am agreeing with you not disagreeing

Hehe OK, I wasn't sure

 

[MelbGal]

Yes but David and I are self employed so our super balances aren't as healthy as PAYG workers

PAYG workers also don't have healthy super balances

 

[s0805]

I'm trying to get all these insurances sorted from sometime as well.....initially i was all for using super to have most all insurances and sacrifice the premium amount to it doesn't chew up the super down the track....but from my experience what i've found is that you really have to dig dip in PDS for each super policy to see what is covered and most importantly benefits are subject to 'condition of release'....

after reading PDS and not having my questions answered from my super about 'condition of release'...I am thinking of having all insurances outside super....having insurance in super being trapped in for any claim (apart from death) is too big a risk.....

can anyone pls recommend good insurance broker in Melbourne.....decryption PDS is very difficult without professional on your side...

 

[s0805]

Quick update on this...been advised by super company that IP to be paid
directly once it gets cleared from insurance company.....TPD will be paid
as lump sum in super but it can be accessed......

From memory someone has mentioned that TPD benefit might not be accessible
until age 65 (condition of release)....atleast in my case..

ATO link I've been provided for reference

http://www.ato.gov.au/Individuals/S...aying-tax/#Access_due_to_permanent_incapacity

 

[Coconutwheels]

Just reading through this, as we are trying to work out how much Death and TPD cover we need.

I think it's unnecessary in our situation to have enough to cover all IP debts, as the portfolio is positive geared.

However! I blindly, did not consider that most of our loans are in joint names, properties held individually.

So assuming the banks will not let a dead person retain their loan, what would happen? Would they want only the deceased half paid out, or the whole loan?

 

[Terry_w]

Just reading through this, as we are trying to work out how much Death and TPD cover we need.

I think it's unnecessary in our situation to have enough to cover all IP debts, as the portfolio is positive geared.

However! I blindly, did not consider that most of our loans are in joint names, properties held individually.

So assuming the banks will not let a dead person retain their loan, what would happen? Would they want only the deceased half paid out, or the whole loan?

Generally death is a breach of the terms of the loan. the bank can call in the whole loan. What happens in practice is that as long as the the loan is being paid they will just let it drag on. However after probate title needs to be transferred and this is when serviceability may come into play.

 

[wylie]

Problem with this is that the money is also trapped in super. Now this isn't such a big deal for life insurance (because if you die, your super becomes part of your estate anyway) but it does impact TPD and income protection because you aren't dead.

I believe suoer doesn't become part of your estate but is distributed directly as per your binding nomination? Happy to be corrected though.

 

[Terry_w]

I believe suoer doesn't become part of your estate but is distributed directly as per your binding nomination? Happy to be corrected though.

That is correct Wylie. Money in super is held on trust and isn't yours until it has been paid out so it doesn't form part of your estate when you die.

Super death benefits are paid out by the trustee to a limited number of people:
1. Your estate, or
2. Your dependants - spouse, children, finnancial dependands etc

If there is no binding nomination it will be at the trustee's discretion. They could pay 1 child and not the other for example - and this has happened many times, more common in a SMSF where the next trustee is only one of your children and that trustee has the ability to legally pay themselves and ignore the rest.

So super could indirectly go into your estate by the trustee's decision. But you should also consider that if the will is challenged then the super may end up in the wrong hands.