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:
The difference between these is the amount of cover you should get.
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:
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:
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:
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).
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:
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:
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.
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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;
Before getting down to the benefits of a family trust, it is important to establish a few key terms;
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.
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.
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.
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;
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.
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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.
An estate plan records what you want done with your assets after your death. It can include documents such as:
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:
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.
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:
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:
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:
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.
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:
You may want to consider setting up a trust if your beneficiaries:
Another reason to consider a trust is to avoid family assets being:
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:
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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:
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:
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:
If you're on a low income, you may be eligible for government super contributions, see super contributions.
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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:
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.
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