Do I have to be an Australian resident to apply?
Yes. Usually only persons with Australian permanent residency status or who are in the process of applying for permanent residency will be considered for insurance.
For new immigrants to Australia there may be a period of established occupation and income required before income protection or TPD cover is provided.
What if I travel overseas?
Once your cover is in place you will be covered 24 hours a day, 7 days a week and anywhere in the world. Some insurers may require that you return to Australia within a specified period (eg three months) after making a claim in order to continue to receive payments.
However if at the time of application for life insurance you intend travelling or living overseas you will need to declare this and depending on the destination and the length of stay the insurance company may decline or restrict cover.
What type of medical evidence may be required?
If you are under the age of 45 there are usually no medicals (eg blood tests or medical exams) required by the insurer if the amount of your life insurance cover is less than $2.5M or your income protection monthly benefit is below $6,500. For higher age groups medicals may be required at lower levels of cover – please Contact us to find out if there are any standard medical requirements for the cover you require. Of course if you disclose a medical condition in your application the insurer may seek more information about this by requesting a report from your doctor or asking you to have blood tests or a medical exam. If medicals are required Insurance Watch will arrange for a nurse to come to your home or work at a time convenient to you and this will be at no cost to you.
What type of financial evidence may be required?
Depending on your sum insured, occupation and whether you are employed or self employed you may be required to complete a Financial questionnaire or provide copies of tax returns or business accounts.
What are the payment options?
Most insurers offer Monthly, Half yearly and Annual payment options.
What methods of payment are there?
With your application form you will need to submit one of the following:
- A cheque made out to the insurance company
- A direct debit request
- A credit card deduction authority
What are Stepped and Level premiums?
Stepped premiums are calculated at each policy anniversary date at your current age. Stepped premiums increase each year, with the rate of increase becoming greater the older you become. Level premiums on the other hand are fixed at a flat amount and will only be varied if the insurer makes a change to their general level of rates. In the early years of the policy level premiums will be more expensive than stepped premiums, but if you hold your cover over the long term the savings can be significant. All of the premiums displayed on the Insurance Watch website are stepped, however you can Contact us to obtain a level premium quote.
Some things to consider when choosing between stepped and level premiums:
How long will you hold your policy? Are you going to hold your policy long term? If you are going to keep your policy for less than 5 years you will usually be better off paying stepped premiums. For example, you may want the insurance to cover a short term debt or while children are at school and do not intend to maintain the cover long term. You will usually need to hold your cover at least 8 to 10 years before being better off with level premiums. However level premiums can provide considerable savings if you hold your policy for longer than this. Contact us if you would like us to provide a projection of stepped and level premiums and your breakeven point.
What pattern of cashflows suits you best? You may prefer to pay the lower stepped premium now because cashflow is tight and/or you expect to have a higher income out of which to meet the stepped premium increases in the future. If your cashflow is comfortable now, you may prefer to pay the higher level premium now so that future payments are not a burden. One of the most common reasons for people discontinuing their stepped premium policies is the increasing premium as they get older, even though the likelihood of making a claim is also increasing. Level premiums can help keep the cost of insurance affordable and allow the cover to be maintained at least until age 65 (after age 65 level premiums usually convert to stepped).
Will you need the same level of cover in the future? While your current level of cover might suit your present situation are you likely to need more or less cover in the future? Will you be reducing debts and increasing assets as you get older and approach retirement and therefore have a reduced need for insurance? If so, as the stepped premiums rise you can gradually reduce your cover to keep the costs affordable. Alternatively if there is a “base” amount of cover you would desire to maintain in the future another strategy would be to have two policies – one policy for the base amount on a level premium basis and another to cover more short term needs on a stepped premium basis which can be discontinued after the need has passed.
Who can own a life insurance policy?
The Life Insured – in which case the benefits will be paid directly to them or in the event of their death to their nominated beneficiaries or otherwise their estate.
Joint ownership – by the Life Insured and another person such as their spouse – in this case the benefits will be paid to both of them jointly or, on the death of the life insured, to the other policy owner.
A third person or company (such as an employer) – in which case they will receive all the benefits paid, not the life insured or their estate. This arrangement is often used in the case of key person insurance but can also be used by self employed persons operating through a company they control.
A Superannuation Fund – in which case the Insurance Company will pay any benefits to the Trustees of the Fund who will then decide how to pay out the benefits with regard to the rules of the fund.The Superannuation Fund can be a Self Managed Superannuation Fund (SMSF), an Insurance Company Superannuation Fund designed for salary sacrifice purposes (where the only asset of the fund is the insurance policy) or any other superannuation fund.
Are there any tax benefits when buying insurance?
This is a complicated area and the following information is of a general nature only. For more details on your tax situation you should consult a tax professional.
Individuals – For Life insurance, TPD insurance and Trauma insurance premiums are not tax deductible and payouts are generally not taxed. For Income Protection premiums are fully tax deductible and benefits are treated as taxable income.
Businesses – Premiums may be tax deductible when the insurance is taken out for revenue purposes ie to replace income if a key person dies purposes in which case the benefits received will generally be assessed as income. If the insurance is taken out for a capital purpose ie to buy out a partner’s business share there may be no tax deduction and no tax payable on the benefit, although in some cases a CGT liability may arise.
Super Funds – A member of a fund can make a salary sacrifice of pre tax dollars into the fund to purchase an insurance policy. Self employed persons can claim tax deductions for contributions made from after tax dollars into a super fund to purchase an insurance policy. No tax will be paid as long as total super contributions are within the concessional contribution cap. Benefits paid out by Super funds may have tax payable on them.For a more detailed explanation - click here
How can I buy insurance through superannuation?
There are several ways to purchase life insurance products within superannuation ie with the policy owned by a superannuation fund:
- If you are already contributing to a super fund you can ask whether they offer insurance products and whether the insurance premiums can be deducted from your contributions to the fund. Some super funds will have limits on the amounts you can insure or will have restricted benefit periods.
- If you have a Self Managed Super Fund (SMSF) this fund can purchase your policy using the contributions it receives or investment funds. Most of the products featured on this website can be purchased in this manner simply by nominating the SMSF as the owner of the policy and the payer of premiums on the Application Form.
- If you are an employee you can ask your employer to salary sacrifice to a super fund an amount representing the insurance premium. Or alternatively if you are self employed you can make a tax deductible super contribution of the premium amount. Most of the products featured on this website can be purchased in this manner by making the contribution payable to a super fund which has been set up by the insurance company for this purpose. You will need to ensure that on your Application Form you nominate that you are purchasing the Superannuation version of the product (there may be some product differences which will be explained in the PDS) which will be owned by the Insurance Company Super Fund. Your only asset in this fund will be the insurance policy – there will be no investment balance.
There are some important considerations you should take into account when purchasing insurance products through superannuation – some of these are discussed below.
What are some of the pros and cons of buying insurance via a superannuation fund?
This is a complicated area and the following information is of a general nature only. For more details on your financial situation you should seek professional advice.
Insurance premiums can be purchased with pre-tax dollars by salary sacrificing into a superannuation fund or if self employed a tax deduction can be claimed for the contribution. The negative is that the premiums will count towards your superannuation concessional contribution cap of $25,000 and therefore will eat into the amount able to be otherwise invested in super without penalty.
Alternatively, in the case of an SMSF or a linked super fund, investment returns can be used to purchase the policy rather than having to find contributions out of current income (remembering that while this will reduce the pressure on cashflow it will eat into investment balances).
However there are some important consequences you need to consider before deciding to hold your insurance within superannuation:
- The payout will only be tax free if made to dependents such as your spouse and children under 18. For older children or other beneficiaries the benefit could be taxed at rates of up to 32%. This could be compensated for by increasing the sum insured to take account of the tax to be deducted.
- In the case of death the Trustees of the Fund will receive the benefit from the Insurance Company and decide how to split this among dependents. The Fund rules may favour a former spouse or children over a new partner following a split or divorce. A non lapsing binding beneficiary nomination can be used to help provide greater certainty as to who will receive the proceeds.
In the case of terminal illness there can be delays in getting a payout compared to where the policy is held directly with the Insurance Company as the Trustee will need to conduct its own due diligence before paying out under these circumstances.
- The payout will be subject to tax under the lump sum superannuation payment rules which means that a tax rate of up to 22% could be applied. This could be compensated for by increasing the sum insured to take account of the tax to be deducted.
- Own Occupation TPD cover cannot be offered by a super fund. Only an Any Occupation definition of TPD will be available. This does not provide as good coverage for occupations which are specialised or highly paid. For example a surgeon who suffered a stroke which left him with a hand tremor and unable to operate could qualify for an Own Occupation TPD payout but may not receive a payout under Any Occupation TPD if he is still able to practise medicine as a GP.
- This type of insurance is not able to be owned by a super fund. This is because a trauma condition may not result in permanent incapacity or TPD as required under super legislation.
- There is no real tax advantage to holding income protection policies within super as the premiums are tax deductible to individuals already.
- There are more extensive benefits available in products outside of super which are not available within super eg lump sum payments on certain trauma events.
- Recently the Australian Tax Office has allowed super funds to have income protection policies offering more than 2 year benefits. However many funds are still restricted by their Rules to a 2 year benefit period, compared to benefit periods outside of super which extend to Age 65.