Protecting your entire family (especially in retirement)

You’ve saved hard to build your retirement nest egg.You should be able to spend the money on a well-earned relaxing lifestyle. But all this could be put at risk if your adult children don’t have their own financial affairs well managed, particularly adequate insurance protection.

It’s human nature to assume that bad things only happen to others. Unfortunately this approach means that many people are unprepared financially for their future if sickness, accident or injury strikes. This often results in other family members having to bear the costs of supporting them.

For those close to or in retirement who are placed in this position, the financial impact can be devastating. 

Could this happen to you?

Let’s consider the example of Gary and Roslyn, both 61, who have one child, a 30-year-old daughter Janet. Gary and Roslyn are retired with an investment portfolio valued at $700,000, paying them an annual income of around $48,000. They also own their home, valued at $650,000.

Gary and Roslyn were enjoying trips away and spending time with their extended family members overseas until their lives dramatically changed when Janet was badly injured in a car accident. Janet was in hospital for almost three months, requiring another nine months of rehabilitation before she was able to return to work. 

Janet’s sick leave ran out after the first fortnight, and as she had no insurance cover in place, she had no income to pay the mortgage on her apartment ($2,500 a month) or other essential costs, including her mounting medical expenses.

As they didn’t want Janet to have to sell her apartment, Gary and Roslyn needed to draw on investment capital from their portfolio to pay Janet’s mortgage and meet her expenses for the year she was off work. This ultimately reduced Gary and Roslyn’s investment portfolio by almost $70,000 (or 10%). 

While Janet fortunately made a full recovery, the cost to Gary and Roslyn of supporting their daughter in her time of need meant a dramatic change in their long-term retirement prospects; ultimately their income was reduced by $7,000 per year for the rest of their lives (a 15% reduction), plus their travel plans were significantly affected.

What can you do?

Believing that unfortunate events only happen to other people isn’t a responsible solution and is a terrible way to jeopardise your retirement. As part of looking after your own financial future, make sure that others who could affect your plans, such as family members, havealso taken the right steps for their own lives.

Talk openly to your adult children about their insurance cover and if they are putting themselves or you at risk, recommend they talk to a licensed adviser or let us know and we can talk them with you.

 

To find out more about insurance and the protection of your family, get in contact with our Wealth Protection Specialist Anthony Kane by calling 07 3245 5466 or email anthony.kane@morgans.com.au who can tailor a protection program for both you and your family.

 

 

 

Managing the cost of insurance

So, you are seriously starting to think about your retirement. The kids are finally more independent, the mortgage is less than it was, and the super is more than it was (at last).

You look at your monthly bank statements and one particular debit is always there. The insurance premium. You have been paying it diligently for years now, maybe decades. But for what? You’ve not claimed and ‘gained’ anything so far. 

At this stage and age, it might be very tempting to cancel your policies and save a few dollars. Before you do, just consider what you could be losing in a future that’s not yet written. It could be hundreds of thousands of dollars. More to the point it could be your home, your lifestyle, or your health - the very thing you are hoping to protect.

Statistically you are more likely to claim the older you get. Look at these facts:

Type of cover	Average age people cancel policy	Average age people make a claim
Income Protection	45	46
Total & Permanent Disability (TPD)	49	48
Trauma Insurance	44	49

 

People often don’t realise an insurance policy is not an ‘all or nothing’ concept and there are options available. For example, as you get older and your debts and commitments reduce so might the level of cover you require. When cover is reduced, so is the premium. Take care though, once a policy is in place it’s easy to reduce the cover but much harder to increase the amount, particularly as you get older. It often only takes a phone call to lower the amount but countless medical tests to increase it or apply again. 

But before you rush off and reduce your cover, it’s important to tailor the amount of cover to your potentially changing circumstances, and this is where your financial planner can help. 

There are many other options available including requesting a freeze on the premiums; paying annually instead of monthly; moving your cover into your super fund (this is not available to all insurance however); or given that your adult children will usually be the ones who will eventually benefit, ask them to share the cost of the premiums!

The basic idea of insurance is not to put you in a better position than you were – it’s there to protect what you have. Regardless of what age you are,think twice about cancelling insurance completely. There are always other options available. Ask us for guidance before you make any decisions.

To find out more about insurance and the protection of your family, get in contact with our Wealth Protection Specialist Anthony Kane by calling 07 3245 5466 or email anthony.kane@morgans.com.au who can tailor a protection program for both you and your family.

SMSF - Don't forget to protect your backside (and your family's)

With almost 500,000 Self Managed Super Funds (SMSF) being set up in Australia, there is an increased concern within government and industry that some clients may not know the extent to which they need to be compliant.

One area in particular that is of concern is that of adequate protection within your SMSF. When moving super out of the retail funds such as industry funds, the automatic insurance that was linked to the account is lost. To some, this may not worry them, but if borrowing within the super fund, like so many have done thus far, the area of ‘Liquidity‘ becomes a very important factor.

If you have borrowed within your super fund, and you are the main ‘guarantor’ on the loan, then on your death or permanent disability, the bank will ‘Call the Loan’, simply because they want to make sure they are paid when you are no longer here.

What happens when the bank calls the loan on your death?

In order for your family or estate to pay the loan back to the bank, they will need money. This seems simple enough.

But where is that money going to come from? They can do one of two things:

1) Sell the asset in your super fund at that time (This would be at a fire sale rate as the funds are needed immediately, potentially selling for under market value) or;

2) SMSF Insurance – Take the proceeds from a life insurance benefit to pay out the lender, retaining the asset (property, etc) within the fund, to be paid to your estate/beneficiaries, etc)

What if there is more than one person or a couple within your SMSF:

If there are other family members within your SMSF, and the fund needs to pay your portion of the estate out, the remaining members share will drop dramatically.  Insurance for the amount needed to ‘buy out’ your share of the SMSF for your estate is vital in keeping within the laws and must do for the welfare of other members of the fund.

The law says you ‘Must consider life insurance within the fund’. While its not manditory,  taking into account the points above you may find that by not taking into account liquidity issues actually impacts on your compliance of the fund.  You could find yourself in big trouble with a very expensive story to tell to the regulator or worse, leaving those that you love in a very poor position on your death.

How do you know if you are complying with this part of the regulations?

Firstly, get in touch with the accountants who helped you set up your fund, as they are ultimately responsible for the advice you receive on your SMSF.     I can give you some points to consider and some figures to determine whether you can afford  not to have protection within the fund.

If you have an questions, get in touch.

Anthony

Qld WorkCover Changes – 
why should you be concerned?

This week the Queensland Government will pass legislation through the Parliament that will change the outcome of many future workers compensation claims.  So why should you be concerned about this? 

The proposal:

The proposed changes to QLD's Workers Compensation have the effect of limiting individuals rights to seek a common law remedy. If a threshold is introduced (as proposed), it will prevent employees pursuing common law claims if a WorkCover doctor determines that the permanent injury suffered by the employee is between 0-5%. WorkCover would then treat these injuries under a system like a "schedule of rates" offering proscribed payments for the severity and type of injury. The proposed change is effectively trying to remove smaller claims and keep workers compensation payouts under control. Employers also want their premiums to fall.

The issues:

1. According to the annual WorkCover Report 2012-13. WorkCover QLD made a profit of $517m, this alone indicates that workers compensation payouts are under control and that workcover qld has the ability to decrease WC premiums in industries that have seen increases above CPI over the past 2 to 3 years.

2. Again the annual report tells us that 43% of the Workcover claims came from 3 industries: 1. Manufacturing (18%), 2. Healthcare and Social Assistance (14%) and 3. Construction (11%)

3. Common law payouts have decreased from $513m in 2011-12 to $461m in 2012-13.  The average cost of a statutory claim was $6960 whilst the average cost of a common law claim was $138,059

4. Preventing access to common law compensation will prevent the worker from suing the employer for the loss of lifetime income that can occur as a result of even a small change in their physical ability.  For example if a 4% decrease in brain function may render it impossible for a worker to operate a vehicle or complex machinery.  For many this would spell the end of their employability.

5. With 50% of all Worker Compensation claims coming from the 5% threshold or below, this legislation will simply remove that cost and result in those claimants not being able to access adequate compensation.

Today's announcement has surprised and disappointed many in the legal industry at how fast the Government has moved to make changes without proper industry consultation. Historically, key stakeholders have been given plenty of notice and consultation. The changes is will be tabled in parliament before the end of this week, most likely Thursday.

Due to the LNP Governments overwhelming majority, this legislation will pass without debate and discussion.  So how then do you protect yourself and your most valuable asset, your ability to earn income?

Your solution:

Well your options haven't changed, they have just become clearer.  The process of protecting your income can be done simply by contacting your preferred Wealth Protection Specialist.  He or she will be able to assist you in finding a solution that can be tailored to your individual needs and those of your family.

If you’d like me to assist you, please get in touch by phone, email or twitter.

Anthony