Financial protection for your loved ones when you die

Posted on 28 February 2020
Financial protection for your loved ones when you die

MoneySmart
(ASIC)

A sudden death can place financial stress on those who depend on you. If this happens, life cover can help them pay the bills and other living expenses.

What is life cover

Life cover is also called 'term life insurance' or 'death cover'. It pays a lump sum amount of money when you die. The money goes to the people you nominate as beneficiaries on the policy. If you haven't named a beneficiary, the super trustee or your estate decides where the money goes.

Life cover may also come with terminal illness cover. This pays a lump sum if you're diagnosed with a terminal illness with a limited life expectancy.

Accidental death insurance is different from life cover. It will only pay out if you die from an accident. It will not provide cover if you die from an illness, disease or suicide. This type of cover often has a lot of exclusions.

To understand what's covered under a policy and the exclusions, read the product disclosure statement (PDS).

Decide if you need life cover

If you have a partner or dependents, life insurance can help repay debt and cover living costs if you die.

If you don't have a partner, or people who depend on you financially, you may not need life cover. But consider getting trauma insurance, income protection insurance or total and permanent disability (TPD) insurance in case you get sick or injured.

How much life cover you might need

To decide how much life cover to get, consider how much money you or your family would:

  • need - to pay the mortgage, credit cards and any other debts, child care, school fees and ongoing living expenses
  • receive - from super, savings, the sale of any investments, your paid leave balance, and support from your extended family

The difference between these is the amount of cover you should get.

Use our Life insurance calculator

Work out if you need life insurance and how much cover you might need.

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

How to buy life cover

Check if you already hold life insurance through super. Most super funds offer default life cover 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 life cover from:

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

Life cover can be bought on its own or packaged with trauma, TPD or income protection insurance. If it's packaged, your life cover may be reduced by any amount paid on other claims in the package. Check the PDS or ask your insurer.

Life cover premiums

You can generally choose to pay for life cover with either:

  • stepped premiums - premiums that increase over time
  • level premiums - premiums that do not change 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.

Compare life cover

Once you know how much life cover you need, shop around and compare:

  • benefits and policy features
  • exclusions
  • waiting periods before you can claim
  • limits on cover
  • the cost of the premiums now and in the future

A cheaper policy may have more exclusions, or it may become more expensive in the future. You can find information about the policy on the insurer's website or in the product disclosure statement (PDS).

Use our Life insurance claims comparison tool

Compare how long it takes different insurers to pay a life cover 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 insure you. You need to give them this information when you apply, renew or change your level of cover.

Insurers usually ask for information about 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, it may mean that the policy has more exclusions.

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.

Making a life cover claim

If someone close to you dies and you need to make a claim, or if you need to make a terminal illness claim, see how to make a life insurance claim.

Posted in: News  

Family Trust Benefits, Explained

Posted on 24 February 2020
Family Trust Benefits, Explained

(Feedsy Exclusive)

Family Trusts: What Are They and When Should You Have One?

A family trust simply refers to a trust set up by a family group who wish to safeguard their collective assets. Such trusts can be used to provide tax benefits to the group in question, to protect assets from individual liability, or to ring-fence them for inheritance or investment purposes.

Read on to discover more and to decide if this type of trust is right for you;

Key Terms

Before getting down to the benefits of a family trust, it is important to establish a few key terms;

Trust Deed

The trust deed is a document which outlines the provisions of the trust, and the terms and conditions it is bound by. This document will be signed by the settlor and trustee(s) before it becomes valid.

Trustee

The trustee is basically the manager of the fund, the person who is trusted with certain executive powers and responsibilities as outlined in the trust deed.

Settlor

The settlor is a third party, not otherwise involved in the activities of the trust. They are responsible for handing over assets to the trustee on behalf of the beneficiary.

Beneficiary

A beneficiary is anyone named in the trust deed who can benefit from the assets and wealth held in the trust.

Family Trust Benefits, Explained

Family trusts enable beneficiaries to enjoy the following benefits;

  • Family assets are protected from any liabilities or actions brought against individual trustees or beneficiaries
  • The assets are also protected within the trust by family control tests, which control the management of the fund
  • Family trusts are exempt from all but one of the trust loss tests, limiting the tax which can be drawn from the trust
  • No tax is payable on distribution of funds between nominated members of the family group (although Family Trust Distribution Tax is applied when money is paid to other parties)
  • Funds are secured and can easily be passed on to future generations

When Is a Family Trust Useful?

Any family which has assets worth protecting or comes into a substantial amount of money is recommended to set up a family trust. Remember that there can be more than one trustee just as there will usually be more than one beneficiary so creating a family trust does not just sign over the family's assets to the control of one member.

It is difficult to predict when someone might get into financial trouble or when an inheritance may need to be paid to a family member in the next generation. As such, it is better to set up a trust when times are good. This will then act as a financial shield on rainier days.

If you think a Family Trust might work for your family's assets, first talk to your lawyer, accountant or financial adviser for more specific advice.

Posted in: News  

Plan ahead to make sure your wishes are carried out

Posted on 14 February 2020
Plan ahead to make sure your wishes are carried out

MoneySmart
(ASIC)

A good estate plan will help make sure your wishes are carried out when you die. It can also help if you become unable to make your own decisions.

Estate plans

An estate plan records what you want done with your assets after your death. It can include documents such as:

  • your will
  • a testamentary trust (as part of your will)
  • superannuation binding nominations
  • an advance healthcare directive (what you'd like done with your body)

It also covers how you want to be cared for medically and financially if you can no longer make your own decisions. This part of your estate plan may be in documents such as:

  • any powers of attorney
  • a power of guardianship (giving someone the right to choose where you live and to make decisions about your medical care)
  • an anticipatory direction (stating your wishes about your future medical treatment)

The documents you choose will depend on your situation and what you're comfortable to trust others with. Get legal advice if you're not sure.

You must be over 18 and mentally competent when you draw up your estate plan.

Your will

A will is a legal document stating what you want to happen to your assets when you die. It is part (but not all) of your estate plan.

Your will can cover things like:

  • how you want your assets shared
  • who will look after your children if they're still young
  • any trusts you want to set up
  • how much money you'd like to give to charities
  • plans for your funeral

It's important to have an up to date will. If you die without one, the law decides who will get your assets and this may not be who you wanted.

Making your will

You can get your will written by a solicitor (for a fee) or by a Public Trustee. A Public Trustee may not charge if you:

  • are a pensioner or aged over 60, or
  • nominate them to carry out the instructions in your will (that is, to be your executor)
The rules vary, so visit the Public Trustee office website for your state.

If you use an online will kit, get it checked by a solicitor or Public Trustee. They can make sure it's been done properly. If your will isn't done properly, it will be invalid.

Make sure you put your will in a safe place and tell someone close to you where it is.

Updating your will

It's important to update your will as your situation changes for example, if you:

  • get married
  • divorce or separate
  • have children or grandchildren
  • have a significant financial change
  • lose your spouse (or someone else who is named in your will) through death

Super and your will

A binding nomination directs who your super fund trustee gives your super benefit to when you die. If you don't nominate someone, the super fund trustee will decide who your money goes to.

Family trusts and your will

If you have a family trust, it continues after your death. The trust determines who gets your assets, even if your will says something different.

Testamentary trusts

A testamentary trust is a trust that is written in your will. It takes effect when you die, and it's administered by a trustee, who you usually name in your will.

The trustee looks after your assets until your beneficiaries can get them. This is set out in your will, and is either when:

  • a child reaches a certain age, or
  • a beneficiary achieves a specific goal (for example, they get married or earn a particular qualification)

You may want to consider setting up a trust if your beneficiaries:

  • are minors (under 18), or
  • have diminished mental capacity, or
  • may not use their inheritance well

Another reason to consider a trust is to avoid family assets being:

  • split as part of a divorce settlement, or
  • part of bankruptcy proceedings

Powers of attorney

A power of attorney is a document where you give someone else the legal right to look after your affairs for you.

It's important to nominate someone that is trustworthy, financially responsible, and likely to be around when you need them.

There are different types of powers of attorney:

General power of attorney

This allows someone to make financial and legal decisions for you. It's usually for a specified time for example, if you're overseas and can't manage your affairs at home.

If you become unable to make decisions yourself, a general power of attorney becomes invalid.

Enduring power of attorney

An enduring power of attorney (or EPA) allows someone to make financial and legal decisions for you. If you become unable to make decisions yourself, an enduring power of attorney will still be valid.

Medical power of attorney

This allows someone to make medical decisions for you if you ever become unable to do so yourself. It doesn't allow them to make other kinds of decisions.

Legal and financial housekeeping

It will help your family and your executor if you list all the documents you have and where they're kept.

As well as the documents talked about above, other key documents to keep handy are:
  • birth certificate
  • marriage certificate
  • life insurance
  • medical insurance
  • Medicare card
  • pensioner concession card
  • house deeds
  • home and contents insurance
  • deeds and insurance policies for any other real estate you own
  • bank account details
  • superannuation papers
  • investment documents (securities, share certificates, bonds)
  • prepaid funeral plans
Posted in: News  

Super for self-employed people

Posted on 13 February 2020
Super for self-employed people

Money and Life
(Financial Planning Association of Australia)

You don't have to pay yourself super, but when you retire, you might be glad you did.

You can make regular or lump sum payments, can usually claim a tax deduction on contributions, and may be able to save tax.

Why pay yourself super

There are advantages to contributing to super:

  • You save for your retirement.
  • You can claim a tax deduction for super contributions.
  • Super contributions are taxed at 15%, so you may save tax depending on your situation.
  • Super investments usually get better returns than bank savings accounts, so your savings will grow faster.

Use our super calculator

Work out how much you can save for your retirement.

How to pay yourself super

If you already have a super fund, check that you can make contributions when you're self employed. You'll need to give your fund your tax file number (TFN) so they can accept contributions.

If you don't have a fund, see choosing a super fund.

Transfer a regular amount or a lump sum

There are two ways to contribute, depending on how you pay yourself. If you receive:

  • A wage - set up a regular transfer into super from your before-tax income.
  • Income from business revenue - transfer a lump sum when you have enough cash flow.

Tax deductions for super contributions

You can claim a tax deduction for contributions you make from your pre-tax income (known as concessional contributions). You benefit because you reduce your taxable income.

To claim a tax deduction, you need to send a 'Notice of intent to claim' form to your super fund before the end of the financial year. Contact your fund to find out how much time you need to allow for processing.

See claiming deductions for personal super contributions on the Australian Taxation Office (ATO) website for detailed information.

Always confirm the details of any super contributions with your accountant or tax agent.

How much to contribute to super

As a guide, employers contribute at least 9.5% of an employee's earnings to super.

There are limits to how much you can contribute each financial year:

  • up to $25,000 in concessional contributions (from your pre-tax income, for which you can claim a deduction), and
  • up to $100,000 in non-concessional contributions (from your after-tax income)

If you're on a low income, you may be eligible for government super contributions, see super contributions.

Posted in: News  

Joint bank accounts, the benefits and the risks

Posted on 28 January 2020
Joint bank accounts, the benefits and the risks

Money Smart
(ASIC)

One account, two names

Opening a joint account with your partner is a huge commitment and one of the biggest decisions you will make in your relationship. Only do it if you completely trust them to responsibly access the money, in good times and in bad.

Here are some tips to work out whether a joint account is right for you.

Risks of joint accounts

It's not a good idea to open a joint account with someone you have just met as you are giving them access to your money. Joint accounts are only suitable for people who trust each other deeply, like a family member or your long-term partner.

Case study: Costa's girlfriend takes him for a ride

Costa works interstate a lot. He decided to open a joint account with his girlfriend, Jenny. The joint account meant he wouldn't have to worry about paying his bills when he was away as she would arrange it for him.

A few weeks later, Costa checked his account to make sure his boss had paid him that week. He was shocked to find there was no money in the account. Costa tried to contact Jenny but she would not return his calls. He rang his bank and found she had withdrawn all his money. She could do this as it was a joint account that did not need his permission for withdrawals.

After this bad experience, Costa got a separate bank account and decided to set up direct debits for his bills. It would be a long time before he trusted anyone with his money again.

Be very wary of anyone pressuring you to open a joint account. People do have money troubles and may see you as a way to help solve their financial problems.

If you open a joint account which offers credit, and one account holder racks up a large amount of debt they can't pay back, you both risk having a bad entry on your credit report. You are also legally responsible for paying off the debt.

Benefits of joint accounts

People often open a joint account because they pay fewer fees with one account than two. It can also make joint payments like mortgage, rent and other bills easier to manage.

Joint accounts work well for people who spend money in a similar way. Both people should agree how and when they will deposit and withdraw money, to meet the same goals.

If you are thinking about opening a joint account, ask yourself:

  • Do I trust the other person completely even if times get tough?
  • Do we communicate well about money matters?
  • Do we have similar goals for our money and similar spending habits?
  • What is our objective in opening a joint account? Is there a better way to achieve this objective?

A shared account for shared bills

One way to make things more convenient for you and your partner would be to keep your money in separate accounts but open one shared account for your shared bills. Discuss with your partner what bills you will pay with your shared account and how much you each will contribute.

Types of joint accounts

There are two types of joint accounts.

Both to sign

This type of account only allows transactions to be made when both parties sign. For example, if you don't agree that your partner should spend money from the account on a new motorbike, they wouldn't be able to access the money without your agreement. If you are worried about security, this may be a good option for you.

Either to sign

This account allows both parties to transact independently of each other. This is a less secure option because one person can withdraw and use the money without the approval or knowledge of the other.

Case study: Missy's ex-husband empties their bank account

Missy was married for 5 years before she and her husband decided to separate. They had over $10,000 in a joint account that they used to pay bills and save for their children's education. A couple of weeks after the separation, Missy's card was declined in the supermarket. There was no money left in the account and she couldn't pay for her groceries.

Missy rang her bank to complain only to find out that her husband had emptied the joint account. Their account allowed either to sign, so her husband hadn't done anything illegal by emptying the account. Missy talked to a lawyer who told her she would have to fight to get her money back, which could take years.

Additional credit cards on your account

Your credit card provider may offer you the option of having additional cards for family members. These are not strictly joint accounts and the primary credit card holder is usually solely liable for the debt. For more information see secondary credit cards.

Closing a joint account

There is more to closing a joint account than just cutting up the card. Follow the steps below to close the joint account properly.

  1. Both owners need to agree - Before you start closing a joint account, both owners need to agree that the account should be closed. Agreeing on this will help avoid any delays when it comes to arranging the closure. If you cannot agree, contact your bank to advise them of a dispute between the joint account holders. They may be able to freeze or put a temporary stop on your account until you are able to resolve this, or they may require both of you to authorise transactions on the account. Make sure you have another account to use for your pay and to pay bills.
  2. Sort out direct debits and credits - Ask your bank for a 13-month list of any direct credits and direct debits for your joint account. Contact your employer and anyone else who regularly puts money into your account, including Centrelink, to tell them of your new account. Cancel all direct debits from your joint account and make alternative arrangements to pay these bills.
  3. Zero balance - Pay off any overdrawn amount and work out with your former partner how you will divide the remaining account balance. Your balance must be zero before you can close the account.
  4. Call your bank - Tell them you would like to close the account. They will need to verify both owners' identities. Take note of the date and time you called, and the name of the customer service officer you spoke to.
  5. Put it in writing - Follow up your call with a letter confirming you want to close the account. Include your joint account details, both signatures, and details of your phone call. Ask for written confirmation that the account has been closed. Keep a copy of your letter in case there are any issues later.
  6. Confirmation - You should receive confirmation from your bank once the joint account has been closed. This could be a letter or a final statement. If it does not arrive, follow up with the bank.
Think very carefully before opening a joint account. Communicate openly with the other person to make sure you both have the same financial goals. Don't be pressured into opening a joint account as you could lose your money.
Posted in: News  

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