Purchasing insurance is the most effective method to protect our families and ourselves, financially against unforeseen circumstances.  Often however, people make simple mistakes whilst purchasing personal insurance cover.  Here are some of the mistakes we find people make.

Purchasing insurance online or over the phone without professional advice

This point refers to all those commercials you see on TV about how you can buy insurance cover over the phone in 5 minutes without any medical and lifestyle questionnaires. When you buy insurance over the phone or online, the assessment process will seem to be very simple and fast.  This type of insurance is what we refer to as direct insurance.  Although simple to implement, direct insurance comes with more risks as direct insurance cover can mean assessment is carried out at the time of claim.

For example you might call up an insurer that you’ve seen on TV and get your insurance cover in place. 3 years later you suffer from a medical condition and need to claim. As the assessment wasn’t carried out during the application stage, it’ll be carried out during the claim stage. During assessment process, the insurer will assess you medically and financially for both the claim and from when you started the policy.  If the insurer discovers that you’ve had medical conditions prior to taking out the insurance policy, they could potentially void your claim altogether, meaning they cancel the policy as if you never held it.  This ultimately means you have been paying 3 years’ worth of premiums for an insurance policy which provided you with no cover at all.

Going through professionals such as a financial adviser, should mean you’re assessed at the time of application.  Although the process may take a little longer, it means you and your family have some certainty when you are accepted at application time, rather than be declined payment because of something you didn’t disclose during application stage.

Only considering price rather than value of the product(s) purchased

Price can often play an important part in your decision to buy personal insurance, but it should not be the only factor to consider. Find out about things like:

–  Additional benefits and definitions of the policy
–  What types of benefits are included and excluded
–  Claims payment procedures
–  What exclusions or limits exist on the cover
–  Ownership options

Price should not be the only consideration when purchasing insurance. That good old saying of ‘You get what you pay for’ applies here. Cheap generally means a lesser policy.

Implementing the wrong levels of cover required

We often find many people implement insufficient insurance covers in order to save money on premiums or they simply don’t know what to include when assessing their need for cover.  Whatever the case underinsurance could leave you and your family in financial strife.

These are just some of the questions you need ask yourself whilst implementing death cover.

If you were to die prematurely which option would you prefer for your partner?

–  Repay the home loan and never have to work again
–  Repay the home loan and not have to work for 5 years
–  They lose the house and have to return to work immediately
–  They can fend for themselves

Additionally would you also want the following expenses covered?

–  Funds for funeral expenses, medical expenses and legal expenses
–  Funds for the children’s education
–  Funds as an inheritance for kids and your partner
–  Purchasing insurance with premiums that increase as you get older

As you get older the chances of you suffering from a medical condition increases, therefore insurers tend to charge higher premiums for older Australians. This causes many people to cancel their cover simply because the premiums (costs) keep getting higher each year with their age.

You also have the option of purchasing your insurance with level premiums. This means the premium can be averaged over the lifetime of the policy and will not increase each year with your age (Cover and premiums can increase by CPI).

Another option is to reduce your sum insured which will reduce your premiums.  As you get older, your expenses and debts such as the mortgage tend to reduce.  Therefore you can reduce your level of insurance cover depending on your situation, which in turn will reduce the premiums payable.

Not reviewing your situation and your cover as life events take place

Certain events that occur in our lives can make a massive impact on our financial needs. Events can range from the birth of a baby to repaying the mortgage, receiving a promotion or re-entering the work force.

Every time there are certain changes to your life, you need to review your insurance cover. Picking up that phone and having a chat to your adviser, could mean you and your family receive the much needed additional cover. Or it could even mean savings in premiums as the existing cover you have may be too high and needs to be reduced.  Whatever the case it’s important to review your insurance needs every time a certain life event occurs.

If you want to know more or thinking about putting in place personal insurance cover, please contact JBS Financial Strategists.

“It’s ok I have insurance cover through my super” is a popular response I get when talking to friends and family about the need for personal insurance cover. It’s true that most of us do in fact have personal insurance cover through our super funds, however have you ever taken a closer look at what you actually have?

Quite often, the default cover provided by industry super funds has absolutely no correlation with your needs and only provides minimal cover. Let’s take a look at Death / TPD and Income Protection a bit closer as these 2 types of insurance covers are the most common types of insurance policies offered by Industry super funds.

Income Protection
With income protection you’ll most likely find the automatic cover may have long waiting periods, up to 90 days (3months), which means claim benefits will not be paid until the end of the waiting period. The question you have to ask yourself is this, “can I sustain my living expenses for 3 months without an income?” If the answer is no then you really have to wonder whether the default cover through super is sufficient. Furthermore benefit periods on default covers are usually 2 years, which means in the event of a successful claim, you’ll only receive benefits for maximum 2 years. After this point the claim benefits will cease, which won’t do much good if you’re suffering from long term injury or illness.

In addition, as the money has to pass through your superannuation account, the benefits are basic in nature to ensure that it meets the strict rules on releasing money from superannuation, particularly when preservation age or retirement requirements have not been met. This may mean that you are unable to work but may not qualify for a claim.

Death and TPD
Depending on your age you may also have default Death and TPD cover. Great! This means your family is covered in the event of your death and or total disablement, right? Well, let’s take a look at the details. For example, if a 28 year old male was to open a new industry super fund, he may be entitled to approximately $150,000 – $290,000 of death and TPD cover. The amount of cover depends on his age and which industry super fund he is with. Even if we took the best case scenario and presume he receives the full $290,000 of default death and TPD cover, it still won’t do much good considering the average Australian Mortgage is now around $450,000. So if you’re the main income earner, how’s your family going to fund the outstanding loan along with the ongoing everyday living costs?

Furthermore it is very common for industry funds to have reducing cover policies. This means that as you age, the level of cover reduces, leaving you with minimal insurance cover when you need it most, which is usually in your later years.

Another important factor to point out is industry super funds do not offer full range of personal insurance cover. Trauma insurance which provides a lump sum payment in the event of serious injury or illness is not offered through your industry super fund. This is especially important to cover any out of pocket medical expenses, which are not covered through Medicare or your private health cover.

Here at JBS we often find new client’s misunderstanding what insurance covers they have through their super funds. It is then our focus to ensure our clients understand what insurance they have through their super fund, whether they are in fact the correct types of insurance they require and determine the correct levels of insurance to implement.

Personal insurance can become very complicated and needs to be looked at in depth. Aside from determining the correct types and levels of insurance cover, there are also other factors to consider such as determining the premium structure on the insurance cover. If you haven’t had a review of your insurance needs or it’s been a while since your last review, we encourage you to get in contact with us for a chat.

Every business with two or more owners should consider what might happen to the business if one of the owners dies, becomes totally and permanently disabled, or suffers a terminal or traumatic illness.

A business generally depends on a few people to produce the profits, provide the capital, and manage the business.  If there is no viable succession plan, there may be significant financial hardship for the surviving business owner(s), as well as for the surviving family members.

Business Succession Planning is an area often neglected by successful business owners, and this lack of understanding can have dire consequences for the business and its partners.

An example of this is a business where there are two equal partners. The value of their respective shareholding is $500,000. If one partner were to die, then the business would need to find $500,000 to pay to the departing partner’s estate. There are a number of options here but most are not viable:

Borrow – May not qualify for a new loan, can the business pay the loan.

Liquidate – Not fair for the surviving business partner, selling price may be well below market value.

Sell Business Assets – These resources may be needed for the business, potential reduction in business cash flow.

Sell Personal Assets – Loss of lifestyle.

Bring in a New Partner – Who would this be?  Cost to find, time to find.  Potential control issues.

Insurance – Low cost, provides certainty.

A business succession agreement involves the business partners entering into a legally binding written agreement to plan what they are to do with their respective interests in the business should any of them die, become disabled, resign or retire.  In this respect, the agreement covers the voluntary and involuntary exit of a partner from the business.

It is vital for any business to have a succession plan in place, but perhaps particularly so for small businesses. Unless you can afford to rebuild your business from the ground up, you need to protect your business from almost any eventuality.  While you may think it may not happen to you and your business, you have to imagine how your business would fare in the event of the loss of a partner or key person – would your business survive if you didn’t have a Business Succession Agreement?

We stress that all businesses have a succession agreement in place so the business can continue to operate with minimal distraction in the event of a loss to a key person, and a funding strategy is in place for the departing business partner ensuring a smooth transition during a difficult period.

JBS can assist in this area, please give us a call to discuss further.

Life insurance is an effective way to protect your family against financial hardship if the unthinkable event happened and you pass away prematurely. Unlike other forms of insurance, such as income protection or critical illness insurance, life insurance can be put in place relatively easily depending on your health status and age.

Having appropriate life insurance policy in place, will mean your beneficiaries receive a lump sum payment to fund for everyday expenses, such as mortgage / rent, bills, childcare costs and kids’ education. The thought of losing our partner is unbearable, which makes the topic of implementing life insurance one we prefer to avoid however is necessary. Most Aussie families would find it difficult and almost impossible to meet daily living expenses should the main income earner pass away. This often leads to families having to move back in with relatives, increasing debt levels and even losing the family home.

Latest studies on the underinsurance issue of Australian families suggest the average household should have at least $680,000 of life insurance in place. This is because it takes into account not only debt and possibly medical costs but also lost income, even for the surviving spouse as the likelihood that you would need to take additional time on top of the obligatory 2 days bereavement leave is very high. In reality however the average household has less than half the required cover or even no insurance at all. Most Aussies believe that they have automatic insurance inside their Super Fund and this is sufficient enough. Furthermore hurdles such as having a perception of life insurance being expensive or time consuming to implement, further deters us from implementing life insurance covers.

Depending on your health and age, Life insurance is one of the most simple and cost effective types of personal insurance to put in place. It’s understandable that most of us would prefer to avoid the topic, however you do so at the risk of leaving your families without financial protection in the future. There are lots of options out there for setting up insurance; inside superannuation, through your bank, online or over the phone cover or insurance through an adviser. Any options outside seeing an adviser means that you have to determine the levels of cover and structure yourself, which is usually the part with the greatest benefit. Knowing how to calculate the level of cover required, including additional amounts if held through super and is ongoing to be paid to a non-tax beneficiary to cover tax, or making sure it’s structured right to pay the least amount of tax or even gain a tax deduction, is very important and shouldn’t be overlooked. This is more important than the product that you choose to take up.

So, before you go out and purchase life insurance, we strongly recommend you speak to an expert. Everyone has different needs for personal insurance and therefore it’s important to visit a financial adviser, like your friendly JBS team member, to discuss your own personal situation.

Some people hold multiple superannuation plans as they hold insurance cover. This is usually done to obtain cheaper insurance through an industry or retail fund, or due to health concerns that may affect your ability to take up new insurance.

Although this can be an effective strategy to maintain or even obtain insurance, as with most strategies there are some drawbacks. The two main drawbacks are that some funds will require you to maintain a minimum balance in order to be able to keep the insurance, and some also require ongoing contributions to be made for the cover to be held.

In some cases you will be notified of your insurance being cancelled if you do not meet their criteria, however in some cases you won’t find out until it comes time to claim. In order to help prevent this from occurring, there are a few things you can do:

– Have a read of your super providers insurance Product Disclosure Statement (PDS) to see if you need to keep a minimum balance or if there is a requirement for ongoing contributions, or both

– Speak to your fund and ask for confirmation of the rules for keeping insurance, and ask for it in writing.

– Make sure you leave enough to cover the minimum balance and at least one year’s worth of insurance premiums in the fund.

– Make sure, if you are considering rolling a portion of funds out of the fund, you leave enough funds to maintain this minimum. Be careful of using the ATO rollover form (NAT 74662) as this usually initiates a full rollover and therefore you may accidentally cancel your insurance.

– You may wish to consider letting your employer contributions continue to be paid to the fund holding the insurance, as this will help to ensure the balance remains above the minimum amount and satisfies the ongoing contributions clause, where applicable.

– If you don’t want the bulk of your superannuation funds invested with that super provider, you could do a further partial rollover when the balance is large enough. Be sure to check the super funds rules again to make sure they haven’t changed with regards to the insurance. Also be careful as some funds do charge a withdrawal fee so you need to take this fee into account if you’re rolling over funds on a regular basis.

As always JBS are here to help, so if you’re ever unsure feel free to contact JBS and we can make sure you have the right strategy in place when it comes to holding insurance in super.

We are all covered by so many insurances already – WorkCover, TAC, Health insurance – it’s understandable that people would question the need for further insurance but like many things that are ‘so called free’ there are always limitations, exceptions and restrictions.

I was reading in the Herald Sun about a lady by the name of Kerryn Barnett, a mum of 3 under 11 and how she contracted an infection that has effectively meant her stomach has stopped working. She hasn’t eaten a solid piece of food since Christmas day. Her infection has seen her lose about 15kg so far, and she suffers from severe nausea, vomiting, fatigue, muscle cramping and malnutrition. Doctors don’t know how or where she contracted the infection from but it has left her and her family’s life devastated. She has had to take time off work and has had to make the difficult decision about what treatment she should peruse to try to improve her situation.

Kerryn effectively had two options (1) removal of her entire stomach and a feeding tube inserted directly into her abdomen. This would mean that no food or drink would ever pass her lips ever again, the feeding tube would need to be replaced every 6 months and she’d be prone to infection or (2) have surgery to implant effectively a pacemaker in her stomach to regulate the nerves and muscles in her stomach. She chose option two as it would seem to give her a better quality of life however as the device itself is not on the Department of Health Prostheses List, her health insurance company won’t cover it. As a general rule, health insurance companies only fund surgeries that have been approved by the state Department of Health after extensive clinical trials. With only 22 of these operations been conducted in Australia, with an 80 per cent success rate, her insurance company won’t cover the $33,000 it costs for the device itself.

Kerryn is concerned about her health but most importantly she is concerned about how she is going to fund this cost, and how she will repay it (assuming its borrowed) especially as its unknown if she will be able to work again.

Kerryn was an ordinary mum, enjoying life with her husband, her daughter (11) and twin boys (8) until she caught this infection. Her life has been turned upside down and now is the time that she is finding out about what she is or isn’t covered for with the insurances she has. Some may think this is a rare condition and it won’t happen to me? Well, think about all the rare diseases, infections, and injuries that occur in the world, they add up when you put them together. And they have to happen to someone…..

The clear message from this article is not to rely on any one form of insurance cover to fund life’s bumps.  There’s not one insurance that covers you totally for everything and therefore at least a little of all or most covers will ensure that you have a backup plan if something goes wrong along the way.

Just as an example and depending on the wording and policy taken, if Kerryn had income protection, she could have been paid an ongoing amount of funds to replace some of her income while she was unable to work. If she had trauma insurance, this may have provided a lump sum of money to allow her options to cover the medical device, or assist with child care or assist with the household bills or even allow her husband time off work to care for her.

If you want to talk more about insurances including existing covers and limitations such as WorkCover, TAC, health insurance, salary continuance, life cover in super etc, please give JBS a call or drop us an email.

Based on figures from the Cancer Council, an estimated 128,000 of new cases of cancer will be diagnosed in Australia this year.

Just as alarming, 1 in 2 men, and 1 in 3 women will be diagnosed with cancer by age 85.  The most common forms of cancers in Australia include:

–  Prostate cancer
–  Breast cancer
–  Melanoma
–  Lung cancer

We all know someone who has suffered cancer of some form or critical illness.  Think back to the emotional stress and strain this placed on that individual and their respective family and friends.  It is a hard time for all.

What we want to highlight in this newsletter is the financial stress that can arise upon diagnoses of Cancer and other major illness.  Many of the advanced treatments for Cancer are not covered by the Government’s Pharmaceutical Benefit Scheme nor private health insurance, yet when it comes to our health, there is no doubt you would want the best treatment available.

Below is a list of some of the advanced drug treatments available and their cost:

–  Bevacizumab – Around $48,000 per year
–  Cetuzimab – Around $84,000 per year
–  Sunitinib – Around $68,950 per year
–  Erlotinib – Around $45,840 per year
–  Azacitidine – Around $84,000 per year
–  Gemcitabine – Around $10,000
–  Alemtuzumab – $26,400 for 12 weeks of treatment
–  Ozaliplatin – $700 every 2 weeks

Put yourself in the position where you are incurring the above cost.  It is most likely you would need to stop working at this point as well.  How would these advanced treatments be funded and how would it impact your financial situation, such as your ability to meet home loan repayments etc?

A Trauma insurance policy can assist with the funding of more advanced treatments, improving your chances of better health.  A Trauma insurance policy can also remove the financial stress that may arise in the event of critical illness which allows you to focus on what’s important, your recovery.

The team at JBS are passionate about the role Trauma insurance plays in your overall strategy and would be happy to assist with any questions you have.

Personal insurance policies may have a large effect on our cash flow. One factor which dictates how much you pay is whether your insurance premiums are structured on a stepped or level premium. If you’ve ever held any form of personal insurance then you may have come across these terms, however have you ever wondered what the differences is between the two? When your personal insurance policy is initially set up, you have the option to choose whether to have the premiums set on a stepped or level structure.

 
Having your premiums on a stepped structure would generally mean you pay lower premiums initially compared to a level structure.  Stepped premiums increase annually with the added risk of a potential claim.  The downside however is that over time your stepped premiums will increase each year as you get older. This method may not be desirable to some as the premiums may become too expensive to sustain over time.  In certain circumstance, stepped premiums are more favourable.

 
For example a 25 year old male may not be able to afford insurance premiums on a level structure, however in several years’ time he may be earning a larger income and thus be able to afford level premiums. So in the meantime he can put in place his personal insurance policy on stepped premiums to ensure he’s covered and once can he can afford to pay level premiums, he can change the premium structure.

 
Or you may have to take out an additional loan for a short period of time (say 5 years) and you can then ensure you have sufficient insurance to cover this debt for just the 5 years and cancel the policy once the debt is repaid.

 
A level premium is the second option you have and it calculates the risk over the life of the policy (assuming it is held to the expiry of the policy – age 65 and above depending on your policy) and spreads the cost of this risk.  Although initially more expensive to set up, insurance policies on a level structure will not increase over time (excluding any CPI increase).  A disadvantage to having level premiums is it may have a larger impact on your cash flow initially, however over time the savings will catch up.

 
The following table is an example of a 35 year old male with $500,000 of death insurance.

*Please note premiums are shown in months. The above table is only an example, for personalised quotes please contact your adviser.

 
As shown above, stepped premiums are initially cheaper, however over time becomes much more expensive.  In the above example the insured person from age 35 to 60, will have paid $14,002 more under stepped premiums compare to a level structure.

 
Stepped and Level premiums are only one factor to consider when reviewing your insurance needs tailored to your needs. So if you’re interested to know more, please contact JBS for further details and advice.

In the late 80s interest rates peaked at 17% which made home ownership out of reach for most people and hard to cover for those that had them. We move forward to today and the Reserve Bank Cash Rate is at a very low 2.25% with the last rate rise occurring in November 2010.

While this isn’t great news if you’re thinking of investing into bank deposits or fixed interest investments as returns are low, it does open up opportunity for people to review their mortgage, other debts and financial planning affairs in general.

Some of the main considerations could be:

–   Obtaining a low rate mortgage that still provides the benefits that you need or utilise. If you refinance to the lowest rate loan you could end up paying a higher interest rate on your credit card and may not be an appropriate strategy or beneficial for you

 
–   There are lenders outside the major 4 banks. While many of us complain about the big 4 making massive profits, we also like their security. You can consider options outside the banks and look at credit unions, lending societies, and other lending institutions.

 
–   Reducing your mortgage interest rate and continuing to make the same level of repayments could see you reducing the length of your loan which means interest savings. But, are there restrictions on how much you can make in additional payments? Do you have a redraw facility in case you need to access the funds?

 
–   Credit card interest rates are high and can be up to 20% so consolidating debt may be a way to go, especially if you can reduce that down to say a mortgage rate of around 5%. But beware because if you don’t make additional payments to cover the consolidated funds, you are extending the term of this debt and could end up paying higher interest over the life of the debt.

 
–   Margin lending becomes more appealing with lower interest rates however any strategy that includes debt, should also have contingency plans. Can you still afford it if interest rates increased by as much as 3%? Do you have relevant insurances in place to ensure that can cover your obligations if you can’t work?

 
–   Returns on cash and fixed interest investments become lower and shares become more appealing however you need to consider the risks involved. Chasing returns rather than investing into a diversified portfolio could see a decline in your balance outside what you are comfortable with.

 
–   Be careful with your spending, with additional funds in our pocket due to lower interest rates, it is tempting to spend more. Maybe consider making additional repayments of debt, additional savings or additional super contributions to ensure that the additional money available in your cashflow isn’t blown.

While you may think that you’re personal situation hasn’t changed, the world around you is. Interest rate rise and fall, economic markets changes and legislation is amended, which is why you should be regularly reviewing your financial position. If you haven’t had a review of your financial plan lately, make sure you give the team at JBS a call to make an appointment.

Movember is an annual event  involving the growing of moustaches during the month of November to raise awareness of men’s health issues, specifically prostate cancer and other male cancers.  The fact this event attaches so much attention and is encouraged by the medical profession show the seriousness these health issues have on families.

The facts:

• Prostate cancer is the most commonly diagnosed cancer in Australian Men (20,000+ new cases per year)
• 1 in 8 Australian men (1.3 Million) experience depression at any given time.
• Every hour, more than 4 men die from potentially preventable conditions in Australia.

There are many complex reasons for the poor state of men’s health which include: 

• Men not openly discussing their health and how they’re feeling
• Reluctance to take action when men don’t feel physically or mentally well
• Men engaging in risky activities that threaten their health
• Stigmas surrounding mental health
• Men are less likely than women to seek help for health concerns, and also less likely to use health care services

It is important that families are adequately protected to combat the financial impact that Prostate cancer and other illnesses impose.  This financial stress can be removed through implementing appropriate levels of insurance, an area JBS Financial Strategists can assist with.

For more information regarding men’s health issues click here.