Insurance & Risk Management

Insurance & Risk Management

Insurance is something most people need, but very few understand.

When used correctly it can provide a financial lifeline for your family in the event of the death of a loved one. The thought of leaving your family in dire financial straits from lack of preparedness often motivates individuals to think of insurance as they complete estate planning goals.

Life, TPD and Income Protection insurance can cover a wide range of financial needs. It can cover burial costs, paying for final expenses or medical bills, to replace lost income from the deceased or injured, help the family pay for children’s education and other family expenses. Having enough insurance to maintain the family’s standard of living is a major goal when it comes to determining if and how much life insurance should be carried.  The other occasion when insurance is important is when a family has mostly illiquid assets or expects to pay estate taxes. If much of the family’s wealth is in real estate or assets that are not easily sold, a death can create a serious financial crunch. Life insurance can alleviate the need to sell items because they will have access to cash from the insurance policy.
 

Who needs Insurance?

Life insurance should be obtained if others depend on your income to cover basic needs. This would include breadwinners, especially if children are still at home. It is also wise to look at your complete financial picture to determine how things will be paid when and if a spouse or parent dies.

Consider “what if” scenarios that include what it would be like to lose one source of income. If the results would make maintaining your standard of living difficult, then insurance can be purchased to cover those needs. Stay at home parents also provide a valuable service in raising children. Many couples choose to purchase insurance for this spouse because it is expensive to cover the costs of childcare and the additional time off required for the surviving parent.  When purchasing life insurance you have the option of naming beneficiaries. This is a very important aspect of purchasing insurance. The beneficiary named will be the person or persons who will receive the proceeds from the insurance.  It is important to understand that when you name a beneficiary it will bypass the will. This means the will is not considered and a check is written to the beneficiary directly. If you are dividing assets or including children this can be significant.  There is also the opportunity to choose primary and secondary beneficiaries. The primary beneficiary is the person who will receive the funds if the policy holder dies. The secondary beneficiaries will only receive a payment if the primary beneficiary predeceases the policy holder.  The other option is to have the will or estate named as the beneficiary. This sends the life insurance proceeds to the will and estate. The advantage is that all the proceeds will be divided based on how the will is written. The disadvantage is that the life insurance proceeds will then be probated.
 

Evaluating the need for life insurance is an important part of estate planning. This financial benefit can help your family maintain their standard of living, even with the loss.  There is a lot of peace of mind that comes from carrying life insurance and knowing your family will be provided for, no matter what happens.



FAQs

Below are common questions often asked regarding Insurance & Risk management.

What is trauma insurance?

Trauma insurance also known as critical illness insurance is something that many families are turning towards in order to cover the high costs associated with a critical illness. These policies can provide peace of mind in the event that a family member receives a trauma diagnosis.

Trauma policies will pay a lump sum in the event that the policyholder is diagnosed with a trauma event that is listed in the policy. Insurers require the policy holder to survive a certain number of days after the diagnosis of the event, generally between 8 and 14 days.

Why buy life insurance?

Life insurance is something most people need, but very few understand. When used correctly it can provide a financial lifeline for your family in the event of the death of a loved one. The thought of leaving your family in dire financial straits from lack of preparedness often motivates individuals to think of life insurance as they complete estate planning goals.

Life insurance can cover a wide range of financial needs. It can cover:

  • Funeral costs

  • Eliminate debt

  • Provide a pool of funds to replace lost income from the deceased,

  • help pay for children’s education
     

Having enough insurance to maintain the family’s standard of living is a major goal when it comes to determining if and how much life insurance should be carried.

The other occasion when life insurance is important is when a family has mostly illiquid assets or expects to pay estate taxes. If much of the family’s wealth is in real estate or assets that are not easily sold, a death can create a serious financial crunch. Life insurance can alleviate the need to sell items because they will have access to cash from the insurance policy.

What does funeral insurance cover?

No one likes to talk about death, particularly not your own. Yet leaving your loved ones with a financial burden is not something responsibly family members want to do, which sometimes requires uncomfortable discussions.

Funerals in Australia range from around $4,000 to $15,000 depending on how elaborate the services you are seeking. Most funeral homes require the costs to be paid upfront which can create a real financial burden on the family. Funeral insurance is one way to address final expenses and relieve the financial burden during this time of sorrow.

Insurance for final expenses is really a small insurance policy. It can range from $3,000 to around $15,000 and will be paid quickly once the claim as been filed, with the intention of covering funeral expenses. Generally policies will pay the designated beneficiary who may use the funds where they are most needed.

When making the decision to purchase funeral coverage it is important to look at what the policy covers and what are the stipulations. For example it is common for policies to include clauses about the cause of death. A typical policy will pay only for an accidental death in the first year, and any cause of death after that. Some policies pay additional amounts if the death is accidental. This is to assist with other expenses like medical bills that might be incurred in the event of a fall or car accident.

Some premiums are stable through the life of the policy and some will increase each year. Since policies will generally pay nothing if the policy is cancelled, looking at future premiums is an important aspect of the evaluation process. Other policies are considered paid up at a specific age. This means that once the policyholder reaches that age no more premiums will be due, but the policy will still be in force. It is common for the age threshold to be at age 90. 

What are the features of income protection insurance?

Your ability to earn an income is your biggest asset so it makes sense to ensure that it is protected. Income protection insurance provides this cover.

The basics of the insurance is to provide replacement income for the policyholder should you be unable to work due to an accident, injury or illness. The cover is available both inside and outside of super.
 

Features of the Insurance

Income protection policies have the following features;

  • A benefit up to a maximum of 75% of your salary

  • A benefit period – this is the period of time that you will receive a benefit payment in the event of a claim, usually 2 years or to age 65;

  • A waiting period – this is the period of time that you have nominated to wait after an accident, injury or illness before you can receive a benefit payment. Usually from 14 days, 30 days, or 90 days.

  • Claim benefits can be indexed to increase in line with inflation

  • Your occupation will affect your premiums, some higher risk occupations are not eligible for income protection cover

  • Insurance premiums can be stepped or level

  • Benefit amounts can be either for an agreed value or indemnity value.

What is the occupation definitions?

Income protection cover is based on the either one of two definitions of occupation when the policy is created. The options are:

  • Own occupation, where the insured person is unable to work in the occupation they were in immediately prior to the event giving rise to the claim.

  • Any occupation is where the insured is unable to work in any occupation for which they are reasonably suitable given education, training and experience. 

What is the role of a financial planner?

A financial planner is your financial coach who will assist you in deciding what you want to achieve and set strategies to help you reach your goals.

A financial planner can help you with the following:

  • Save money

  • Debt management

  • Insurance – to protect against risk

  • Grow your assets

  • Make the most of your superannuation

  • Plan for retirement

  • Discuss strategies to reduce tax

  • Make the most of redundancy payments and early retirement

  • Maximise potential government benefits 

What are some important considerations?

There are some important considerations when looking into funeral insurance policies.

The premiums for funeral cover may start out being quite low, however these can jump up as you get older and if you stop paying you lose your cover.

Another thing to consider is that you may actually end up paying considerably more in insurance premiums than the value of the policy. Something which may be likely to happen more as we are living longer.
 

Pros

  • You can get cover from day one but most policies only cover accidental death in the first year or two

  • Insurance may seem familiar and affordable when you take it out and may suit you if you aren't sure if you can save for funeral costs
     

Cons

  • Premiums generally go up over time. This means what started out as a cheap way to pay funeral costs can become very expensive, especially if you are living on a fixed income

  • If you can't afford to keep up the premiums or want to cancel your policy you are not likely to get back the premiums that you have paid

  • If you live another 5 to 10 years you may end up paying more in premiums than the cost of the funeral

  • As most insurers only cover accidental death in the first 2 years, if you die from a terminal illness in this time you may not be covered. Check the policy's terms and conditions

  • Sometimes it can take a while for your family to receive the insurance payout to cover funeral costs.


There are alternates to assist in funding funeral cost, talk to your financial planner to discuss which option is more suitable for you given your personal circumstances.   

Who needs life insurance?

Life insurance should be obtained if others depend on your income to cover basic needs. This would include breadwinners, especially if children are still at home. It is also wise to look at your complete financial picture to determine how things will be paid when and if a spouse or parent dies.

Consider “what if” scenarios that include what it would be like to lose one source of income. If the results would make maintaining your standard of living difficult, then insurance can be purchased to cover those needs. Stay at home parents also provide a valuable service in raising children. Many couples choose to purchase insurance for this spouse because it is expensive to cover the costs of childcare and the additional time off required for the surviving parent.

Evaluating the need for life insurance is an important part of estate planning. This financial benefit can help your family maintain their standard of living, even with the loss.

There is a lot of peace of mind that comes from carrying life insurance and knowing your family will be provided for, no matter what happens.

What illnesses are covered?

The definition of critical illness and its diagnosis are not standardized in Australia, what is covered will vary from policy to policy. Therefore it is important to understand what illnesses are included in the policy you select. Many policies will cover 40 or more occurrences, such as heart attack, cancer, stroke and coronary artery by-pass surgery.

Other inclusions might be Alzheimer’s disease, kidney failure, blindness or deafness, organ transplants, multiple sclerosis, Parkinson disease, paralysis or other terminal illnesses.

Who needs trauma insurance?

We all know someone, perhaps a family member or a friend who has suffered cancer, heart attack, stroke or who have required heart surgery. At some stage in our lives other critical illness or conditions could occur to us.

With the advances in medicine and technology, more people are surviving trauma events, where in the past they may not have. And with us living longer the chances of suffering a trauma events increases.

The good news is that we can insure ourselves so that in the event that we suffer a trauma event we can have cover in place to provide financial security and support to assist with meeting our bills and expenses.

How can a financial planner help me?
A financial planner can help you with the following:
  • Save money

  • Debt management

  • Insurance – to protect against risk

  • Grow your assets

  • Make the most of your superannuation

  • Plan for retirement

  • Discuss strategies to reduce tax

  • Make the most of redundancy payments and early retirement

  • Maximise potential government benefits

Beneficiaries or a will?

When purchasing life insurance you have the option of naming beneficiaries. This is a very important aspect of purchasing insurance. The beneficiary named will be the person or persons who will receive the proceeds from the insurance.

It is important to understand that when you name a beneficiary it will bypass the will. This means the will is not considered and a proceeds of the policy is paid to the beneficiary directly. If you are dividing assets or including children this can be significant consideration.

The other option is to have the will or estate named as the beneficiary. This sends the life insurance proceeds to the will and estate. The advantage is that all the proceeds will be divided based on how the will is written. The disadvantage is that the life insurance proceeds will then need to go through the formal estate process, which may delay the payment of much needed funds to your beneficiaries. Where there is no will, intestacy rules will apply which may vary across states.

What are the restrictions to income protection insurance?

Income protection benefits will only be activated due to accident, illness or injury. Other events that may prevent work such as unemployment are not covered by the policies.

Carrying a policy that covers Income Protection is a very important part of financial planning. These policies are one of the most used policies that are issued by insurance companies. Whether you are missing work due to an injury that makes you unable to work for several months or you become permanently disabled. Anything that results in your inability to work will have a major financial impact on your family’s ability to cover even basic needs. These policies help families provide for their basic necessities, when the unexpected happens.

 
How does trauma cover help me?

Trauma cover provides you with a lump sum payment which can be used to:

  • Pay for specialists, recovery costs and rehabilitation therapy

  • Pay for lifestyle changes, e.g. home renovations that may assist in recovery

  • Pay off your mortgage and/or outstanding debts you may have

  • To enable a partner to reduce working hours to look after you, or hire a personal carer.

  • To provide insurance cover for people who have not been eligible for income protection cover due to the nature of their occupation, pastimes or pre-existing conditions.
     

There are no restrictions on how you use the proceeds of a payout from your trauma policy. The payout is tax free.   

How do I select my financial adviser?

The value of financial planning advice can be priceless. Locating a financial planner that you feel comfortable with and trust can seem a daunting task.

Selecting an advisor who understands your needs and what is important to you will lead to a higher level of satisfaction than numbers on a chart. The best way to find an advisor that understands your needs and goals includes doing a little legwork.

The first step to finding a great advisor is to ask friends and family members. Pay particular attention to those in similar life situations. Recommendations from people with similar ages and financial goals will lead you to an advisor that understands your demographics.

Once you have a list of a few potential advisors, look at their web pages. Information found online will give you an idea of what market they are targeting and their investment philosophy. Call the ones you like and schedule a meeting. As you meet with each potential advisor prepare questions that will help you understand what is important to them, and what they will be able to provide for you.
 

Questions to Ask a Potential Advisor

  • What qualifications do you have?

  • What experience do you have?

  • What area of financial planning do you specalise in?

  • What services and products are you licensed and authorized to provide advice on?

  • What is your approach to investment?

  • Are you a member of the financial planning association?

  • How often do you contact and/or meet with your clients?

  • What are your fees and how are they charged?
     

After you meet with the advisor, evaluate the meeting. Did they answer questions in a way that built your confidence? Did they ask questions to better understand your situation? Selecting an advisor is a very personal decision. You will trust this person with your most intimate information.

Taking the time upfront to select an advisor should be the beginning of a long term relationship. They will help you build a retirement plan, pay for your children’s college and most other important aspects of your life. They will be a part of most major decisions. A financial advisor will help you put forth a plan that will enable you to reach your financial goals. This is a very important person in your life. 

What is involved in the financial planning process?

We seek to build lasting relationships with our clients. We take the time to clarify what’s important to you and to understand your situation and values. We want to work with you over the long-term to create a plan that works for you now and in the future.

Our financial planning process ensures that your financial goals are our highest priority. We have a structured process which ensures that our advice is collaborative, simple and transparent.

We seek to build lasting relationships with our clients. We take the time to clarify what’s important to you and to understand your situation and values. We want to work with you over the long-term to create a plan that works for you now and in the future.

Our financial planning process ensures that your financial goals are our highest priority. We have a structured process which ensures that our advice is collaborative, simple and transparent.

Our financial planning process involves the following:
 

Initial consultation

The first appointment is about getting to know each other and is free of charge.

The purpose of the meeting is to allow you and your financial planner to get to know each other, assess your general needs and decide whether you feel comfortable with your adviser to proceed into an advice relationship.

To make the most of the of your discussions, make sure that you bring any relevant documents, such as details of your income, superannuation, debts, assets and insurances so we can work out how we can help you.

If you decide to proceed to the next stage, we will discuss all fees and charges with you at this point.
 

Strategy recommendations

We will present and explain our recommendations to you in a written document known as a Statement of Advice. This forms the basis of your financial plan.

We take you step by step through the plan, answer any questions you have, and make any modifications you require.
 

Implementation

Once you have agreed with the advice and given us the go-ahead, together we will help you implement your chosen strategies.
 

Regular Review

Your financial plan is not a set and forget solution, it is a living document that can adapt to change. It is therefore important to seek regular check-ups to ensure that the plan continues to meet your needs and identify any changes in your circumstance.

How much will it cost?

Our initial consultation is both cost and obligation free.

During our initial meeting we will determine whether or not we are able to assist you. If there is a match we will agree on the fee for our Statement of Advice (based on the complexity and strategies explored) with you prior to commencing any work. We will also provide you with a copy of our Financial Services Guide (FSG), this document contains the services that your financial planner is authorised to provide and clearly defines our fees for those services.

The Statement of Advice that we provide to you will detail all fees and charges to the financial planner should you agree to proceed with the advice.

How do I pay for your service?

You can pay in the following ways:

  • as a fee for advice that will be deducted from your investments as a one-off payment or in instalments;

  • by direct invoice from us for initial and ongoing advice;

  • via commission we may receive from a financial product provider when you commence an insurance contract, or loan product;

  • or a combination of the above.

 

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