Many moving parts gauging inflation

Posted on 8 April 2022
Many moving parts gauging inflation

The Reserve Bank of Australia is looking for more clarity on the current state of inflation, having likely accelerated since its last set of forecasts in February.

The central bank left the official cash rate unchanged at a record low 0.1 per cent at Tuesday’s monthly board meeting, but indicated that it is now more concerned about the outlook for inflation.

Economists are now expecting an interest rate rise as early as June.

Annual inflation was already running at 3.5 per cent at the end of last year, but the RBA had previously expected it to edge up to 3.75 per cent by June, holding above its two to three per cent inflation target.

Assistant RBA governor Christopher Kent told a Senate hearing on Wednesday this expected pick-up in inflation was prior to the invasion of Ukraine by Russia.

The war has pushed commodity prices higher, coming alongside supply chain issues impacting manufacturing goods.

There are also potential supply chain issues from China as it struggles to manage a COVID-19 outbreak, while at the same time floods on the Australian east coast have affected food and construction prices.

“There are a lot of moving parts and you have got to take it holistically,” newly promoted deputy RBA governor Michele Bullock told the hearing.

RBA governor Philip Lowe notably dropped the word “patient” in his post-meeting statement on Tuesday, having repeatedly used it in the past in terms of needing to lift interest rates.

He also warned the board will be monitoring the data closely from now on.

Economists expectations for the first rate rise – likely to be a 0.15 per cent increase to 0.25 per cent – are now clustering around the June 7 board meeting.

This would be after the release of the consumer price index for the March quarter on April 27, and the wage price index on May 18 for the same period.

Deutsche Bank Research chief economist Phil O’Donaghoe has brought forward his expectation for the first rate move to June from August and predicts a further three 0.25 per cent increases over the rest of 2022 taking the cash rate to one per cent.

“We pencil in the August, November and December meetings as likely dates for those three subsequent hikes,” he said.

Treasury does not believe government spending in last week’s federal budget will inflame inflation or alter the outlook for interest rates.

The 2022/23 budget papers show the government made $39 billion worth of new spending decisions, which includes an $8.6 billion cost-of-living package.

Luke Yeaman, deputy secretary of Treasury’s macroeconomic group, told senators that given the size of the overall economy, he did not expect this would have a material impact on inflation.

“We don’t believe that level of spending is going to materially change the profile of interest rates,” he told senators on Wednesday.

Treasurer Josh Frydenberg tried to soothe the concerns of voters, saying many households are in a position to absorb a rate rise.

“Australians are about 36 months ahead on mortgage payments if you take into account offset accounts,” he told the Nine Network.

“And what the Reserve Bank said yesterday was that household budgets were in a strong position.”

But Dr Lowe also said “rising prices are putting pressure on household budgets and the floods are causing hardship for many communities”.

Shadow treasurer Jim Chalmers was unsurprisingly not impressed with the treasurer’s comments.

“If Josh Frydenberg doesn’t understand that interest rate rises will hurt and if he thinks that wages growth is strong enough, then he’s even more horrendously out of touch than we feared,” Dr Chalmers told reporters in Brisbane.

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A critical illness or serious injury can make it difficult to continue to work. Trauma insurance can help.

Posted on 7 April 2022
A critical illness or serious injury can make it difficult to continue to work. Trauma insurance can help.

What trauma insurance covers

Trauma insurance, also called ‘critical illness’ or ‘recovery insurance’ pays a lump sum amount if you suffer a critical illness or serious injury. This includes cancer, a heart condition, major head injury or stroke. Trauma insurance does not cover mental health conditions.

What’s covered under a trauma insurance policy and medical definitions can be different between insurers. To understand what’s covered under a trauma insurance policy, read the product disclosure statement (PDS).

A critical illness or serious injury can make it difficult to continue to work. Trauma insurance can help support you and your family at this time and pay for medical and rehabilitation costs.

Trauma insurance can be used to help pay for:

  • out-of-pocket medical costs
  • living expenses for you and your family while you’re unable to work
  • the cost of therapy, nursing care and special transport
  • changes to housing if needed
  • paying back your debt, for example, a mortgage

Deciding if you need trauma insurance

When deciding if you need trauma insurance and how much, think about:

  • how much income you and your family would need if you couldn’t work for some time
  • if you have income protection insurance or total and permanent disability (TPD) insurance, these can help replace lost income. You may hold these insurances through your super fund
  • if you have private health insurance that could help pay for some medical expenses
  • what support from family or friends may be available

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

How to buy trauma insurance

You can buy trauma insurance:

  • through a financial adviser or insurance broker
  • directly from an insurance company.

You can choose to buy trauma insurance on its own or packaged with life cover and TPD insurance. If you buy trauma insurance packaged with life cover, your life cover could be reduced by the amount paid out on a trauma claim. To see if this applies to a policy, read the PDS or ask your insurer.

Super funds no longer offer new trauma insurance policies. But if you were in a super fund that offered trauma insurance before July 2014, you might still have it through your super fund. Check your member statement or contact your super fund to find out.

Before buying, renewing or switching insurance, check if the policy will cover you for claims associated with COVID-19.

Compare trauma insurance policies

Before you buy trauma insurance, compare policies to make sure you get the right one for you. Check:

  • the critical illnesses and serious injuries covered
  • exclusions
  • waiting periods before you can claim
  • limits on cover
  • premiums – now and in the future.

A cheaper policy may have more exclusions, or it may become more expensive in the future.

Compare how long different insurers take to pay a trauma insurance claim and the percentage of claims they pay out.

What you need to tell your insurer

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

This can include your:

  • age
  • job
  • medical history
  • family history, such as a history of disease
  • lifestyle, for example, if you’re a smoker
  • high risk sports or hobbies, such as skydiving

If an insurer doesn’t ask for your medical history, the policy might have more exclusions or narrower medical definitions.

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 to an insurer to decline a claim you make.

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Cost of living concerns will be addressed in budget

Posted on 29 March 2022
Cost of living concerns will be addressed in budget

Andrew Brown
(Australian Associated Press)

Measures to address cost of living concerns will be a key component of the upcoming federal budget, according to the prime minister.

With less than a week until the 2022/23 budget is handed down, Scott Morrison said work was being finalised on ways to address the soaring cost of essentials such as petrol and groceries.

“Addressing those cost of living pressures will be a key priority of that budget,” he told the Nine Network on Wednesday.

“We’ve been carefully designing our response because what we don’t do is have knee-jerk reactions on things like the economy.”

The government will be hoping to use the budget as a springboard ahead of the federal election due in May.

Meanwhile, Opposition Leader Anthony Albanese has thrown his support behind budget measures that tackle the rising cost of living.

However, he remained tight-lipped on whether Labor supported calls to temporarily cut the 44.2 cents per litre fuel excise, in the wake of rising petrol prices.

“We’ll assess all of it, we’ll wait and see,” he told ABC TV.

“There’s a range of measures that are putting pressure on family budgets, the biggest of which is that we just simply aren’t keeping up with the cost of living.”

The Labor leader hit out at the prime minister, saying the government did not have plans to actively address rising living costs.

“Housing costs are going up, the cost of food and groceries are going up, these are all having an impact on people’s capacity to pay their bills and to get by,” he said.

“The only thing that isn’t going up is wages, and wages are projected to fall in real terms again further over the next four years.”

It comes as the government announced on Wednesday $5.4 billion of funding would be in the budget to build the Hells Gates Dam in north Queensland.

The government will guarantee funding to build the dam, which is expected to create 7000 jobs, subject to completion of the final stage of the business case, expected in June this year.

Up to 60,000 hectares of irrigation would be opened up through a 2100 gigalitre dam bolstered by three downstream irrigation weirs.

Mr Morrison said more dams were needed in Australia to support agricultural industries

“We’ve done the homework on Hells Gates Dam and it’s now time to get on and build it,” he said.

“This dam will help turn the Burdekin region into an agricultural powerhouse, helping our farmers to stock supermarkets and feed Australia while also securing north Queensland’s water supply and security.”

With transport a key issue for regional areas, a further $29 million in the budget will go towards upgrading regional airports.

Applications will open for grants of between $20,000 and $5 million to help cover up to half of eligible project costs.

Also on Wednesday, the government announced $700 million has been set aside to support specialist medical training in regional areas.

The government’s specialist training program will be continued for four years from 2022, with $708.6 million being spent on its expansion.

The program, which has been running since 2010, allows for local doctors to be trained across medical specialty areas.

 

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Budget takes smart approach to red tape

Posted on 28 March 2022
Budget takes smart approach to red tape

Maeve Bannister and Colin Brinsden
(Australian Associated Press)

Business groups believe the Morrison government is taking a “smart approach” to deregulation with a budget proposal to reduce red tape, while improving the cash flow for small businesses.

In the latest measure to emerge from his pre-budget blitz, Treasurer Josh Frydenberg announced a reduction in the pay-as-you-go tax instalment rate to two per cent for the 2022/23 income year from the standard 10 per cent.

A reduced uplift rate is expected to lower instalments and deliver $1.85 billion in cashflow support.

Treasury estimates more than two million businesses and sole traders currently using the pay-as-you-go instalment method will benefit from the changes.

Mr Frydenberg says the returns from the package will allow small and medium-sized businesses and sole traders to invest, innovate and grow job opportunities.

The government will also support companies to manage their cash flows by allowing them to calculate PAYG instalments based on their annual financial performance.

Other measures involve automating tax instalment calculations, sharing data collected by the tax office to allow tax returns to be pre-filled, and digitising income reporting for trusts.

They are expected to result in annual compliance savings of more than $800 million a year.

Australian Chamber of Commerce and Industry chief executive Andrew McKellar said this is a smart approach to deregulation.

“Practical measures to reduce the handbrakes on business will save time on compliance, reduce costs, and boost efficiency, benefiting all Australians,” Mr McKellar said.

“The strength of our economic recovery is contingent on removing the regulatory burden on business, particularly for small and medium enterprises.”

The Tax Institute said being smarter with technology is also a welcome measure.

 

 

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Know where you stand: Myths about life insurance

Posted on 25 March 2022
Know where you stand: Myths about life insurance

Here we dispel some common myths about life insurance to help you make informed decisions about your cover.

Myth # 1 – Life insurance companies don’t pay claims

There’s a common perception that life insurance companies will do everything they can to avoid paying claims.

In fact, 92% of all life insurance claims are paid in the first instance¹. And OnePath Life has paid 93% of claims for policies taken out with a financial adviser during 2018.

As long as you fulfil your duty to take reasonable care not to make a misrepresentation when you apply for cover, and you’re covered for the medical condition you’re claiming for, you should be confident your claim will be paid.

1.       www.asic.gov.au/about-asic/news-centre/find-a-media-release/2019-releases/19-070mr-apra-and-asic-publish-world-leading-life-insurance-data/

Myth # 2 – I’m young and don’t have kids or a mortgage, so I don’t need it

Life insurance isn’t all about providing for debts and dependents. It’s also about looking after yourself.

Think what would happen if you became ill or disabled and couldn’t work. Would you ask your parents to bear the financial burden? Or would you rather have income protection to help you manage on your own?

There are benefits to applying for life insurance when you’re young and healthy. It’s generally cheaper and it means you don’t have to worry about getting cover later if your health changes (see myth #3).

Myth # 3 – I won’t be covered if my health changes

Once you start your cover, what you are covered under your life insurance for won’t change – even if your health deteriorates.

In fact, you don’t even need to tell your insurer about a change in your health unless you intend to make a claim.

It’s worth noting that for a OneCare Business TPD policy, a change of occupation can alter terms of cover*. Should you change occupation,you will need to notify your insurer and refer to the Product Disclosure Statement and Policy Terms for details.

* OneCare is issued by OnePath Life Limited (OnePath Life) ABN 33 009 657 176, AFSL 238341. OneCare Super is issued by OnePath Custodians Pty Limited ABN 12 048 508 496, AFSL 238246. OnePath Life is not a related body corporate of OnePath Custodians.

We recommend that you read the relevant Product Disclosure Statement available at www.onepath.com.au or by calling 133 667 before deciding whether to acquire, or to continue to hold the product.

Myth # 4 – You have to do lots of medical tests to get covered

Most life insurance products sold through financial advisers required some medical tests before you get covered, but it may be as simple as one blood test and a GP examination.

  • If you have an existing medical condition, you may be asked to provide extra information about your condition.
  • The purpose of these tests is to ensure your cover accurately reflects your health and medical history.
  • You generally won’t be covered for pre-existing conditions, so it’s important to establish upfront what those pre-existing conditions are. It’s important to answer all questions accurately upfront so any pre-existing conditions can be reviewed by your insurer for any impacts to your cover or ability to obtain cover.
  • That way you know exactly what is or isn’t covered under your policy.

Myth # 5 – Level premiums don’t go up

‘Level premiums’ are designed to save you money over the long term by eliminating the impact of age-based premium increases.

Level premiums are calculated based on your age when the cover started, not at each anniversary, which means premiums are generally averaged out over a number of years. This means your cover is more expensive than‘stepped premiums’ at the beginning of your policy, but generally gets cheaper(relative to stepped premiums) as your policy continues.

It’s important to note that at policy anniversary the premium may still increase (even with level premiums), because age is just one factor that determines your premium. Other factors that impact premium (such as claims trends in Australian population) can result in a repricing of your insurance cover.

When insurers reprice stepped or level premiums, they don’t do it for an individual policy within a specific group unless they do it for every policy in that group.

Many life insurers in Australia have repriced level premiums in the past, so it’s important to talk to your financial adviser or your life insurer to understand your policy as well as any repricing activity that’s recently occurred, so you can make an informed decision. To understand the factors that influence your premium. Learn more here.

Regardless of whether stepped or level premium is selected, premium rates and premium factors are not guaranteed or fixed and insurers have increased premium rates in the past and may increase in the future.

The graph is for illustrative purposes only. This graph illustrates age-based premium increases for stepped against level for all covers. This premium comparison has been calculated, assuming all other factors affecting the premiums are excluded.Both stepped and level premiums can increase due to factors other than age.Premium rates and premium factors are not guaranteed or fixed, and insurers have increased premium rates in the past and may increase in the future. We recommend that you refer to the relevant product disclosure statement and policy documentation, and speak to your financial adviser, to understand other factors affecting your premiums.

Myth # 6 – I’ll be stuck paying for cover I don’t need

Life insurance is designed to change as your life changes, as your cover needs can vary significantly over your lifetime.

Say you take out life insurance when you get married. You may want to increase your cover if you have children or increase your mortgage (learn about increasing your cover via future insurability).

But similarly you may want to reduce your cover if your children have grown up or you’ve paid down your debts.

Your financial adviser can help you work out how much cover you need at any given time, to make sure you’re not paying for any cover you don’t need.

Myth # 7 – The cover in my super is enough

Over 70% of Australian life insurance policies – more than 13.5 million separate policies – are held through superannuation funds*.

While this cover is great to have, many of these policies only provide the minimum level of cover employers have to offer, which isn’t enough for most people.

In fact, Rice Warner estimates that the median level of cover in superannuation meets is only 60% of needs for life cover (or just 38% for families with children), 13% for TPD cover and 17% for income protection.

Basic needs met by life insurance cover in super

*Insurance through superannuation, 2016, www.ricewarner.com/insurance-through-superannuation/

Myth # 8 – I’ll be covered by workers’ compensation

Workers’ compensation provides some protection for work-related accidents or injuries.

But it doesn’t cover any illnesses, nor does it cover anything that happens to you when you’re not at work.

Even if you are covered by workers compensation, the benefits are typically capped in terms of the amount and duration of payments, which means the cover could fall well short of what you really need.

Myth # 9 – Only the main breadwinner needs life insurance

There’s no doubt insuring the breadwinner is vital for any family’s financial security.

But if a non-working or lower income-earning partner became seriously ill or injured, their family would need a lot of assistance.

Imagine a breadwinner had to reduce their working hours to look after their partner or young children, or employ outside help.

Either option could prove very expensive, which is why both members of a couple should consider life insurance – regardless of how much they earn.

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Disclaimer

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