Income Protection: How, what, why and who

Posted on 18 June 2021
Income Protection: How, what, why and who

MoneySmart
(ASIC)

Income protection insurance pays up to 85% of your pre-tax income for a specified time if you're unable to work due to partial or total disability.

Each income protection policy has its own definition of partial or total disability that must be met before a claim is made. Check the insurer's website or the product disclosure statement (PDS) for the definition and any exclusions.

Your income protection policy will have a waiting period before payments start due to loss of income through injury or illness.

Income protection insurance doesn't cover you for lost income because you are stood down or become unemployed.

Deciding if you need income protection insurance

Income protection insurance can be important if you:

  • are self-employed or a small business owner, as you may not have sick or annual leave
  • have family members or dependents that rely on the income you earn
  • have debt, such as a mortgage, you'll need to make payments on even if you're unable to work

To work out how much income protection you need, prepare a budget. This will help you see your monthly expenses and the income you'll need to replace. You may want to factor in making payments to your super as well.

Also consider:

  • if you have total or permanent disability or permanent disability or trauma insurance, that can help replace lost income
  • if you have private health insurance that could help pay for any medical expenses
  • what help or support from family or friends may be available

If you need help deciding if you need income protection insurance and how much, speak to a financial adviser.

Choosing an income protection policy

Some of the things you'll need to consider when choosing an income protection policy are:

Policy type

Income protection policies are provided as either an:

  • Indemnity value policy - the amount you're insured for is a percentage of your salary when you make a claim. If your salary has decreased since you bought the policy, you'll get a smaller monthly insurance payment. Indemnity value policies are generally cheaper and can be useful for people with a stable income.
  • Agreed value policy - the amount you're insured for is a percentage of an agreed amount when you sign up for the policy. These are generally more expensive but can be useful if you have income that changes from year-to-year.

Waiting period

This is the amount of time you must wait before your payments start. Most income protection policies offer a waiting period between 14 days and two years.

In general, the longer the waiting period, the cheaper the policy. When you're choosing the waiting period, think about how much you have in sick and annual leave, savings and emergency funds.

Benefit period

The benefit period is how long the monthly payments will last. Most income protection policies offer two or five years, or up to a specific age (such as 65). The longer the benefit period, the more expensive the policy. But it also means greater protection if you're unable to work for a longer time.

Stepped or level premiums

You can generally choose to pay for income protection insurance with either:

  • Stepped premiums - recalculated at each policy renewal, usually increasing each year based on the higher chance of a claim as you age
  • Level premiums - charge a higher premium at the start of the policy, but changes to cost aren't based on your age so increases happen more slowly over time

Your choice of stepped or level premiums has a large impact on how much your premiums will cost now and in the future.

Use our Life insurance claims comparison tool

Compare how long it takes different insurers to pay an income protection claim and the percentage of claims they pay out.

How to buy income protection insurance

Check if you already have income protection insurance through super. Most super funds offer default income protection insurance that's cheaper than buying it directly. You can increase your level of cover through your super fund if you need to.

You can also buy income protection insurance from:

  • an insurance broker
  • a financial adviser
  • an insurance company

Premiums you pay for income protection insurance held outside of super are generally tax deductible. Policies outside of super usually allow a higher amount of cover and have more features and benefits available.

What you need to tell your insurer

You need to tell your insurer anything that could affect their decision to provide you with insurance. You need to give them this information when you apply, renew or change your insurance.

This can include your:

  • age
  • job
  • income (salary, wage, commissions)
  • medical history
  • lifestyle (for example, if you're a smoker)
  • hobbies or activities that are high risk (for example, skydiving)

The information you provide will help the insurer to decide:

  • if they should insure you
  • how much your premiums will be
  • terms and conditions for your policy

It is important that you answer the questions honestly. Providing misleading answers could lead an insurer to deny a claim you make.

Who to contact to make a claim

To make a claim on your insurance, speak to the person or company you bought the policy from.

  • an insurer - contact the insurance company
  • an insurance broker or financial adviser - speak to them first
  • a superannuation fund - contact your fund
  • an employment arrangement - speak to your employer
Posted in:News  

Holiday homes

Posted on 17 June 2021
Holiday homes

(ATO)

If you own a holiday home, you can only claim tax deductions for expenses to the extent the home is rented out or genuinely available for rent.

Even if you don't rent out your holiday home, there are capital gains tax implications when you sell it.

Holiday home not rented out

If you own a holiday home and don't rent out the property, you don't include anything in your tax return until you sell it.

When you sell the property, you will need to calculate your capital gain or loss.

Keep all records from the time you purchase the property until the time you sell it to be able to work out the capital gain or loss when you sell.

See also:

Holiday home rented out

If your holiday home is rented out, you need to include the rental income you receive as income in your tax return.

You can claim expenses for the property based on the extent that they are incurred for the purpose of producing rental income.

You will need to apportion your expenses if:

  • your property is genuinely available for rent for only part of the year
  • your property is used for private purposes for part of the year
  • only part of your property is used to earn rent
  • you charge less than market rent to family or friends to use the property.

Holiday home not genuinely available for rent

Expenses may be deductible for periods when the property is not rented out, if the property is genuinely available for rent.

Factors that may indicate a property isn't genuinely available for rent include:

  • it's advertised in ways that limit its exposure to potential tenants for example, the property is only advertised
    • at your workplace
    • by word of mouth
    • on restricted social media groups
    • outside annual holiday periods when the likelihood of it being rented out is very low
  • the location, condition of the property, or accessibility of the property mean that it's unlikely tenants will seek to rent it
  • you place unreasonable or stringent conditions on renting out the property that restrict the likelihood of the property being rented out, such as
    • setting the rent above the rate of comparable properties in the area
    • placing a combination of restrictions on renting out the property for example, requiring prospective tenants to provide references for short holiday stays and having conditions like 'no children' and 'no pets'
  • you refuse to rent out the property to interested people without adequate reasons.

These factors generally indicate the owner doesn't have a genuine intention to earn rental income from the property and may have other purposes, such as using it or reserving it for private use.

Holiday home part year rental

If you rent out your holiday home and also use it for private purposes, you must apportion your expenses. You can't claim deductions for the proportion of expenses that relate to your private use or if it was not genuinely available for rent, such as when used or reserved for yourself, friends or family.

If your holiday home is rented out to family, relatives or friends below market rates, your deductions for that period are limited to the amount of rent received.

Posted in:News  

Do you need income protection insurance?

Posted on 29 April 2021
Do you need income protection insurance?

MoneySmart
(ASIC)

Income protection insurance pays up to 85% of your pre-tax income for a specified time if you're unable to work due to partial or total disability.

Each income protection policy has its own definition of partial or total disability that must be met before a claim is made. Check the insurer's website or the product disclosure statement (PDS) for the definition and any exclusions.

Your income protection policy will have a waiting period before payments start due to loss of income through injury or illness.

Income protection insurance doesn't cover you for lost income because you are stood down or become unemployed.

Deciding if you need income protection insurance

Income protection insurance can be important if you:

  • are self-employed or a small business owner, as you may not have sick or annual leave
  • have family members or dependents that rely on the income you earn
  • have debt, such as a mortgage, you'll need to make payments on even if you're unable to work

To work out how much income protection you need, prepare a budget. This will help you see your monthly expenses and the income you'll need to replace. You may want to factor in making payments to your super as well.

Also consider:

  • if you have total or permanent disability or permanent disability or trauma insurance, that can help replace lost income
  • if you have private health insurance that could help pay for any medical expenses
  • what help or support from family or friends may be available

If you need help deciding if you need income protection insurance and how much, speak to a financial adviser.

Choosing an income protection policy

Some of the things you'll need to consider when choosing an income protection policy are:

Policy type

Income protection policies are provided as either an:

  • Indemnity value policy - the amount you're insured for is a percentage of your salary when you make a claim. If your salary has decreased since you bought the policy, you'll get a smaller monthly insurance payment. Indemnity value policies are generally cheaper and can be useful for people with a stable income.
  • Agreed value policy - the amount you're insured for is a percentage of an agreed amount when you sign up for the policy. These are generally more expensive but can be useful if you have income that changes from year-to-year.

Waiting period

This is the amount of time you must wait before your payments start. Most income protection policies offer a waiting period between 14 days and two years.

In general, the longer the waiting period, the cheaper the policy. When you're choosing the waiting period, think about how much you have in sick and annual leave, savings and emergency funds.

Benefit period

The benefit period is how long the monthly payments will last. Most income protection policies offer two or five years, or up to a specific age (such as 65). The longer the benefit period, the more expensive the policy. But it also means greater protection if you're unable to work for a longer time.

Stepped or level premiums

You can generally choose to pay for income protection insurance with either:

  • Stepped premiums - recalculated at each policy renewal, usually increasing each year based on the higher chance of a claim as you age
  • Level premiums - charge a higher premium at the start of the policy, but changes to cost aren't based on your age so increases happen more slowly over time

Your choice of stepped or level premiums has a large impact on how much your premiums will cost now and in the future.

Use our Life insurance claims comparison tool

Compare how long it takes different insurers to pay an income protection claim and the percentage of claims they pay out.

How to buy income protection insurance

Check if you already have income protection insurance through super. Most super funds offer default income protection insurance that's cheaper than buying it directly. You can increase your level of cover through your super fund if you need to.

You can also buy income protection insurance from:

  • an insurance broker
  • a financial adviser
  • an insurance company

Premiums you pay for income protection insurance held outside of super are generally tax deductible. Policies outside of super usually allow a higher amount of cover and have more features and benefits available.

What you need to tell your insurer

You need to tell your insurer anything that could affect their decision to provide you with insurance. You need to give them this information when you apply, renew or change your insurance.

This can include your:

  • age
  • job
  • income (salary, wage, commissions)
  • medical history
  • lifestyle (for example, if you're a smoker)
  • hobbies or activities that are high risk (for example, skydiving)

The information you provide will help the insurer to decide:

  • if they should insure you
  • how much your premiums will be
  • terms and conditions for your policy

It is important that you answer the questions honestly. Providing misleading answers could lead an insurer to deny a claim you make.

Who to contact to make a claim

To make a claim on your insurance, speak to the person or company you bought the policy from.

  • an insurer - contact the insurance company
  • an insurance broker or financial adviser - speak to them first
  • a superannuation fund - contact your fund
  • an employment arrangement - speak to your employer

 

Posted in:News  

Budget position now in far better shape

Posted on 28 April 2021
Budget position now in far better shape

Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)

Josh Frydenberg is expected to hand down a budget in far better shape than was expected just a few months ago due to the economy performing much stronger than predicted.

But economists are warning the treasurer not to rush in and start cutting the budget to get debt back on an even keel, saying he needs to be patient after the shock after last year's deep recession.

However, the better budget position will allow for some targeted policies to be introduced and for a promised aged care package to go ahead when it is released on May 11.

Senior government minister Karen Andrews declined to comment on media reports the government is putting together a $10 billion aged care budget package.

"Aged care is a significant issue for our government and for the people of Australia," she told Sky News' Sunday Agenda program.

"We established the royal commission to look at aged care and we have made it very clear that there will be a comprehensive response to that."

But Opposition Leader Anthony Albanese said the $10 billion figure being speculated is a "drop in the ocean" compared with the crisis in aged care.

"The government had a report which was titled neglect," he told reporters in Hobart.

"We have maggots in wounds. We have an extraordinary number of aged care residents who literally aren't getting enough to eat."

In the mid-year budget review released in December a $197.7 billion budget deficit was forecast for the 2020/21 financial year and a $108.5 billion deficit for 2021/22.

"On budget night the treasurer will announce deficits that are substantially lower because the economy is substantially better," Deloitte Access Economics economist Chris Richardson told Sky News.

Warren Hogan, economic adviser at Judo Bank, agreed the budget will be in a much better position due to lower unemployment, stronger economic growth and higher commodity prices, particularly for iron ore.

But he advised the government to be patient and avoid the temptation of tightening fiscal policy too soon.

"This government likes to get the budget back into order quickly, that's not the right strategy right now. Allow the economy to do the repair for the time being," he told Sky News.

"The government needs to be patient, it needs to stick to its plan and allow the strong economy to be the major driver of budget repair for at least the next 12 months, if not a big longer."

AMP Capital chief economist Shane Oliver believes the deficit could now be $125 billion for 2020/21 because the strength in employment means a surge in personal tax revenue.

"The starting point could for the 2021/22 budget could now be around $50 billion," Dr Oliver said in a note to clients.

When the pandemic and subsequent recession first hit Australia's shores, Mr Frydenberg said he did not intend to start budget repair until the unemployment rate was comfortably below six per cent.

The unemployment was 5.6 per cent in March.

"We're already there, but we need to go further," Mr Richardson said.

"The Reserve Bank aims for an unemployment rate of 4.5 per cent. The government should shift its line in the sand aiming for an unemployment rate comfortably under five."

Posted in:News  

Losses to car ad scams climbing

Posted on 27 April 2021
Losses to car ad scams climbing

Australians have already lost over $288,000 to vehicle scams in the first quarter of this year, more than all losses reported to Scamwatch in 2019, and scammers have now begun impersonating defence personnel to con their victims.

In a vehicle scam, scammers post fake online listings offering to sell in-demand cars at well below market value to lure potential buyers looking for a second hand vehicle. Scammers seek payment to secure the car for the buyer but never deliver the vehicle.

Vehicle scams are commonly hosted on sites such as Facebook Marketplace, Autotrader, Car Sales, Cars Guide and Gumtree.

"As second hand car sales increased during the pandemic, unfortunately so did vehicle scams. If current trends continue, Australians could lose much more to vehicle scams this year than the $1 million lost in 2020," ACCC Deputy Chair Delia Rickard said.

"We want to raise awareness of these scams to reduce the number of people who may be vulnerable to them."

A new technique we are seeing is scammers pretending to be defence personnel. In 97 per cent of reports received this year, the scammer claimed to be in the military (navy, army and air force), or to work for the Department of Defence, and said they wanted to sell their vehicle before deployment. This sought to create a sense of urgency with buyers and explained the unusually low listing price of the vehicles and why buyers could not inspect them prior to payment.

Email addresses that do not bear the legitimate the defence email format of @defence.gov.au may be an indication of a scam, but even the correct email format does not guarantee the car ad is not a scam, as scammers are able to spoof email addresses. It is best to look for all warning signs to avoid being scammed.

"A price that is too good to be true should be a warning sign for potential buyers. If a classified ad offers a vehicle at a very low price, the ad might not be legitimate. For example, one Scamwatch report noted a listing that advertised a car for nearly $10,000 below its market value to entice buyers looking for a bargain."

Vehicle scammers often seek payment via a third party website. A large number of reports to Scamwatch mentioned the use of escrow agents, a third party who is supposed to 'hold' the money from the buyer until goods are received, before releasing the funds to the seller. Other commonly requested payment methods include eBay, direct bank transfer or international money transfers.

"If the seller claims to be unavailable and insists on payment before meeting the buyer or allowing them to pick up their new car, this should raise suspicions," Ms Rickard said.

"It is relatively common for scammers to claim that they are travelling or moving away to avoid meeting buyers before payment."

"Always try to inspect the vehicle before purchase and avoid unusual payment methods. If you have any doubts, do not go ahead with the deal," Ms Rickard said.

In addition to losing money to vehicle scams, around 20 per cent of consumers who reported vehicle scams have lost personal information, after providing their address, phone number and copies of their driver's license to the scammer. To protect your identity, never provide your personal details to someone you have only met online.

"Fortunately, over 80 per cent of people who reported vehicle scams to us managed to avoid losing money by identifying the scam early. We encourage consumers to trust their instincts. If something seems too good to be true, it probably is," Ms Rickard said.

Further help for consumers

If you have been the victim of a scam, contact your bank as soon as possible and contact the platform on which you were scammed to inform them of the circumstances.

If you have experienced a loss online and believe the perpetrator is located in Australia, you can also report the scam to ReportCyber. ReportCyber triages reports and allocates them to the relevant law enforcement authorities for further action.

Victims of identity theft, or cybercrime can contact IDCARE, a free government-funded service that will work with you to develop a specific response plan to your situation and provide support. You can contact IDCARE on 1800 595 160 or visit www.idcare.org.

Background

Scamwatch received 346 reports of vehicle scams between 1 January and 31 March, with $288,459 in losses reported during this period.

This compares to over 1,000 reports and more than $1 million lost in 2020, and 330 reports and about $245,000 losses in 2019.

People aged 18-24 have lost the most money to vehicle scams in 2021 so far, $79,210, or 27 per cent of total losses. People aged under 35 lost 35 per cent of the total losses reported to vehicle scams so far in 2021. People aged 65 years and over reported lower losses than all other age groups.

New South Wales has the highest number of reports (114) and losses ($97,297) to vehicle scams, while reporters from the Northern Territory and Tasmania have not reported any losses this year to date.

Some examples of the fake Department of Defence emails that have been used in recent vehicle scams include:

  • @airforce-raaf.org
  • @royal-australian-defence-gov.com
  • defence@royal-australian-air-force-gov-au.com
Posted in:News  

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