LIFEWILLIS LIFE INSURANCE NEWSLETTER

IN ThIS ISSUE: �A “super” way to insure �Stepped Premiums v Level Premiums - Which is right for you?�Policy Enhancements - Are you missing out?

A SUpER WAy To INSUREAN ESSENTIAL pART oF EvERy FINANCIAL pLAN IS hAvINg pERSoNAL INSURANCE. BUT IT’S ALSo ImpoRTANT To mAkE SURE yoU pURChASE IT IN A CoST-EFFECTIvE WAy.

BENEFIT FRom Up-FRoNT TAx CoNCESSIoNS

Buying personal insurances such as life and total and permanent disability cover through super makes super sense. This is because you may be able to take advantage of a range of ‘up-front’ tax concessions that are generally1 not available when insuring outside super.

For example:

if you’re an employee and are eligible to make salary sacrifice �contributions, you may be able to buy insurance through a super fund with pre-tax dollars

if you’re self-employed� 2 or unsupported3, you can generally claim your super contributions as a tax deduction – regardless of whether they’re used by the super fund to purchase investments or insurance.

These concessions can make it cheaper to insure through a super fund, or enable you to purchase a higher level of cover.

1 If you purchase Income Protection insurance outside a super fund, you may be eligible to claim the premiums as a tax deduction.2 To qualify as self-employed you must earn less than 10% of your assessable income plus reportable fringe benefits from eligible employment.3 To qualify as unsupported you cannot receive (or be eligible to receive) super

contributions from an employer.

pAy FoR INSURANCE WIThoUT REdUCINg yoUR CAShFLoW

Another benefit of insuring through super is you can get cover for you and your family without reducing your cashflow. This is done by arranging to have the insurance premiums deducted from your existing account balance without making additional contribution to cover the cost. Without insurance, your family could run down your savings very quickly and face financial difficulty well before your intended retirement date.

WhAT CoST-EFFECTIvE INSURANCES ARE AvAILABLE IN SUpER?

Life and Total & Permanent Disability Insurance

Now that Reasonable Benefit Limits have been abolished, if you purchase life cover through a super fund, your dependants (such as your spouse, or young children) can receive unlimited tax-free lump sum payments in the event of your death.

This change, which took effect on 1 July 2007, has made it more attractive to hold larger insurance policies within the superannuation system.

Insurance can also be purchased through super to provide a lump sum payment to:

certain non-dependants, such as adult children, in �the event of your death, or

yourself if you suffer a total and permanent �disability.

In both these cases, tax may be payable on some (or all) of the insurance proceeds. However, to compensate for the potential tax liability, you could think about taking out a higher level of insurance cover.

While this will generally increase your premiums, the after-tax cost may still be lower than insuring outside super when you take into account the ‘up-front’ tax concessions outlined earlier.

Income Protection Insurance

Income protection insurance can replace up to 75% of your income if you’re temporarily unable to work due to illness or injury.

If you take out the insurance in a super fund, you can arrange to have the premium deducted from your existing superannuation account balance, without making additional contribution to cover the cost.

This can enable you to buy income protection insurance in situations where you don’t have sufficient cashflow to fund the premiums outside super.

These cashflow benefits can also arise when holding life cover and total and permanent disability insurance within a super fund.IMPORTANT - before you arrange any type of personal insurance, you should consider a range of issues including the tax implications.

mEET mARCMarc Ventura is responsible for the Life Insurance practice for Willis Employee Benefits. Marc is a qualified financial adviser. He has 6 years advising experience in the area of Life Insurance, superannuation, investments and finance.

His qualifications include the Diploma of Financial Planning, Graduate Diploma of Applied Finance and Investment & Cert IV in Mortgage Broking. He is currently completing his Masters in Accounting.

Marc’s approach is very much about building strong relationships with clients, ensuring that he clearly understands your goals and objectives before recommending and structuring the most appropriate advice for your situation.

Marc is a member of the Financial Services Institute of Australasia as well as the Mortgage and Finance Association of Australia.

Marc Ventura

Business & Personal Life Risk Advisor

t: +61 3 8681 9701

f: +61 3 8681 9899

e: venturam@willis.com

hoW To pURChASE INSURANCECoST-EFFECTIvELyWhEN yoU TAkE oUT INSURANCE, ThERE ARE gENERALLy TWo WAyS yoU CAN pAy yoUR pREmIUm (RAThER LIkE ChooSINg BETWEEN A FIxEd oR vARIABLE RATE homE LoAN).

A stepped premium that is calculated each year in line with your age.1.

A level premium that is calculated each year based on your age when the cover 2. commenced. Level premiums are not guaranteed (ie they can go up or down).

While stepped premiums are usually lower in the early years, level premiums can be a more cost-effective option if you continue the insurance over a longer period.

Why Level Premiums?

Level premiums are higher than stepped premiums at the start (see graph below). However, over time, as stepped premiums increase, level premiums can end up cheaper – often at the stage in life when you need the cover most.

The premium savings in later years can also make up for the additional payments in earlier years – saving you money over the life of the policy.

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When deciding which option to choose, remember you could need insurance to cover your debts and income for 30 years or longer. During those years you could change careers, remarry (with a second mortgage), start a new business or simply work for longer.

With a bit of forward planning, and the right premium option, you could reduce the long-term cost of your insurance considerably.(Article continued overleaf)

dId yoU kNoW?

oLd poLICIES v NEW poLICIESThe Challenge

If you have a policy that is more than seven years old, you are likely to be missing out on the regular policy enhancements that each insurer releases.

On top of missing out on policy upgrades, your policy will also be on older premium rates that are more expensive than current premium rates.

So what should you do?

The Solution

Give Marc Ventura a call as soon as possible to review your current policy and see how we can help.

The Impact

In the last 12 months alone, we have helped many clients improve their policies and reduce their premiums at the same time. Our clients have saved anywhere between $300 to $8,000 per annum.

hoW To pURChASE INSURANCE CoST-EFFECTIvELy (continued from previous page)

Level Premiums - The Benefits

Pay a lower average premium over the �life of the policyMake your cover more affordable at a �time when you need it most.

What are the Facts?

Most claims occur in later years, but many policies lapse at this time due to the higher stepped premiums. Selecting level premiums can make the cover more affordable in the later years and enables you to keep the cover going at a time when you need it most.

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Source:1. MLC Limited - Age at entry by policy for inforce business as at 31 March 2006.2. MLC Limited - Claims Statistics Analysis Lump Sum October 2003 - March 2006

Case Study

David, aged 35, took out life insurance for $500,000. Even though he needed to pay higher premiums in the earlier years, he chose level premiums because he anticipated needing the cover until he reached age 65.

Over the next 30 years, he paid premiums of $822 pa for a total cost of $24,660. Had he chosen stepped premiums, he would have paid between $346 and $6,862 pa for a total amount of $57,127.

By having the foresight to select level premiums, David saved himself a total of $32,467 (or $13,999 in today’s dollars*). Also, in the later years, the cover was far more affordable (ie $822 pa versus $6,862 pa) at age 65.

The situation could have been quite different, however, if David only needed the insurance for a shorter time period. For example, over five years, his level premium of $822 pa would have cost him a total of $4,110. Conversely, if he’d chosen stepped premiums, he would have paid between $346 and $419 pa, for a total cost of only $1,889.

In this example, opting for level premiums cost him an extra $2,221 (or $2,102 in today’s dollars*).

* Assumes inflation rate of 3% pa.Combining Stepped and Level Premiums

Just as you can opt for a combination of fixed and variable rate home loans, you may want to take out part of your insurance using stepped premiums and use level premiums for the rest.

This way, the premium in the earlier years will be lower than if you opt entirely for level premiums.

Over time, you can then reduce your stepped premium cover as you build up more assets and potentially need less insurance.

As a result, you could end up paying level premiums on most (if not all) of your insurance in the later years, and benefit from the lower premium costs associated with level premiums at that time.

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TIpS & TRApS

The earlier you ‘lock-in’ the level premium, the greater the potential �long-term savings. This is because level premiums are based on your age when the policy commences and are generally lower if you take out the cover at a younger age. However, as you approach age 65, the difference between the two premium structures diminishes for new policies

Level premiums can make budgeting easier, because you know in �advance what your insurance is going to cost

The maximum age you can start a policy with level premiums is �generally lower than for stepped premiums

Regardless of which premium structure you choose, you generally �also have a choice of how often you pay your premiums (eg monthly or annually)

CoNTACT US

To discuss your situation, please contact Willis Employee Benefits:

Marc Ventura Business & Personal Life Risk Advisor

t: +61 3 8681 9701 e: venturam@willis.com

DisclaimerWhile all reasonable skill and care has been taken in the preparation of this document it should not be construed or relied upon as a substitute for financial advice. No warranty or liability is accepted by Willis Employee Benefits Pty Ltd its shareholders, directors, employees, other affiliated companies for any statement, error or omission. Willis Employee Benefits Pty Ltd ABN 68 059 019 911 AFSL 233764. Registered Office Level 5, 570 Bourke Street, Melbourne, Victoria, 3000. www.willis.com.au