Monday, 4 April 2011

Consider this your most important asset

Your Income
Your most important asset
Most of us are aware of the need to prepare for our long-term security and this is evident by the increased interest in superannuation and other long-term investments.
However, preparing a long-term plan is also about protecting you from unforseen risks that could occur through life’s journey. We tend to take for granted that we will be able to work and earn an income. But if your income suddenly stops, as a result of an injury or illness, it can have devastating results on your plan and harm you and your family’s future security.
When asked what our greatest (physical) asset is, many people state their house and see the importance of insuring it and its contents. Yet many of us overlook our income. You might be surprised how much you may earn in your lifetime and therefore, how important it is to protect your income. For example, if you are aged 40 and earn $1,550 per week, you could earn more than $3.8M* before you turn 65. No matter how large or small your package is, generally it supports your family, your bills, your loan repayments and your lifestyle.
*assumes a 5% pa salary increase
How does the strategy work?
Income protection can be a flexible and tax-effective way to protect the asset that creates wealth for you and your family. If you suffer from an illness or injury and are unable to work, income protection can pay a monthly benefit; typically of up to 75% of your pre-tax income/package to replace your lost earnings. While the protection can be measured against your pre-tax earnings, benefits paid are tax assessable as income.
You can insure for a range of benefit payment periods, with maximum cover generally up to age 65, as well as a range of features, options and benefits, giving you the choice to select the income protection most suitable to you. Most income protection plans offer a range of waiting periods (the length of time you have to wait before your benefit starts accruing) and benefit periods (the maximum length of time you will receive the benefit). As a general rule, the shorter the waiting period and the longer the benefit period, the more the protection will cost. If cost is a consideration, it is generally better to trade off a longer waiting period rather than shortening the benefit period.
The benefits
  Income protection generally provides up to 75% of pre-tax income/package in the event of a disability.
  Income protection premiums are generally tax deductible (but remember that the benefits paid are assessable as income).

Thursday, 31 March 2011

Death and Total & Permanent Disability

Personal Financial Protection
Death and Total & Permanent Disability
How you can benefit?
Many people take out insurance via a personal policy in their own name. However, if you're self-employed, have a low-income spouse or you're eligible to make salary sacrifice contributions into super, you should consider the benefits of insuring through a super fund.
By holding Death and Total and Permanent Disability (TPD) insurance through super, you may be able to reduce the effective cost of your premiums - in some cases by almost 50%. When you take into account the potential tax savings, it may also be possible to purchase a higher level of cover, when compared to insuring outside super.
How does the strategy work?
The same tax deductions and offsets that apply when investing in super also apply to insurance purchased through a super fund.
If you're self-employed, you can claim all the bulk of you super contributions as a tax deduction, (however additional taxes may apply if contribution caps are exceeded) regardless of whether the contributions are used to purchase investments or insurance.
If you're eligible to make salary sacrifice contributions, you may be able to purchase insurance through a super fund with pre-tax dollars.
If you're making super contributions on behalf of a non-working or low-income spouse, you may be able to claim a tax offset.
These tax benefits can make it significantly cost effective (on an after-tax basis) to insure through a super fund.
The benefits
  The amount saved via the deductions and offsets can be used to reduce the effective cost of your after-tax premium or increase your level of insurance cover.
  This strategy is ideal if you have a family and you're looking for financial protection.