Hello readers – my apologies to the very late blog today. It’s been a busy week which has been great for business!
You may have noticed that a lot of my blogs are about wealth protection. The reason for this is because I personally don’t think enough people have it, and if they do I don’t think they have the right structure for them let alone the right amount. This is one of the main reasons why I actually started my business in the first place – to ensure my friends, family, colleagues and clients understood what they have and why they have it, as well as making sure they have the right type and amount.
One of the things that really concerns me is when I speak with a potential client who says “I’m fine, I have insurance inside Super”. Unfortunately too many people out there think that if they already have some form of cover this is enough for them. But do they have the cover they actually need? Do they have the right amount for their own personal circumstances? Is it the right ‘definition’ for them? There is more to it that just having a base level of cover that either your Super fund has provided you with, or that your employer has provided you with. How can this one sum of cover be appropriate to you, the guy who sits next to you, the person you report to, and everyone you work with? I have been in business for over 12 months and have seen over 50 people in that time, and I can tell you that not one person has required the exact same amount of cover. To me, this suggests that the default amount you are given in your super fund is most likely not going to be right for you.
I’ve gone a little off track here…. The reason why I am writing about this this week is because over the weekend I read an article which stated that insurances inside industry super funds are likely to increase by up to 50%. Industry funds, whilst have a place in the market, are basically the no frills superannuation and insurance option. As a result their fees and insurance premiums have typically been very very cheap, but at what cost? Most of my clients are more than happy to pay the premium (pardon the pun) in order to have the comfort that they are in the right investment options, and have the right insurance structure, type and amount. Unfortunately, a lot of people default to the industry fund because they are cheap. I can talk all day about why they are a cheap option, and how can they really be ‘not for profit’ despite the marketing spend you see on TV, but the biggest issue I would like to talk about is the insurance available inside an industry super fund.
Yes, the premiums have been cheap as chips. However, the amount you are covered for reduces year on year as you get older. You only ever pay a flat dollar rate for the premium, and your age will determine how much cover you can buy. I have seen clients who thought they have a certain amount of cover, but this was from 5 years ago and now their cover has more than halved. So what happens at age 65 when your life cover no longer exists? You have been paying premiums all this time and when – statistically – your family is most likely to need it you no longer have a cent available to you? And now they are going to increase the premium by up to 50% yet your insurable amount remains the same? It just doesn’t make sense to me.
On the flip side, by seeking advice, the number attached to your insurance premium is based solely on your own individual needs and circumstances. This amount does not reduce,as you get older unless you ask for it to be reduced. Yes, the premium goes up each year but at least you have the peace of mind that when something happens, you and your family have the amount that you originally applied for. Only if you and your financial planner decide it is appropriate to reduce the cover will the cover ever reduce.
This information was prepared by Monarch Advisory Group Pty Ltd, ABN 75155549705. Licensed under Securitor Financial Group Ltd, ABN 48 009 189 495 AFSL & Australian Credit Licence (ACL) 240687 (Securitor) and is current as at January 2013.
This publication provides an overview or summary only and it shouldn’t be considered a comprehensive statement on any matter or relied upon as such. The information in this publication does not take into account your objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it and obtain financial advice. Any taxation position described in this publication is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation.
Your individual situation may differ and you should seek independent professional tax advice. The rules associated with the super and tax regimes are complex and subject to change and the opportunities and effects will differ depending on your personal circumstances.