Basics of Insurance

It doesn’t matter how careful you are, there are things in life you can’t control. And even the smartest plans can come unstuck if you don’t give yourself adequate protection.

Whether you’re looking to protect yourself, your family, or your assets, insurance can give you the second chance you need to get on with life – without having to start all over again.

Most insurance companies classify their products as either ‘general’ insurance or ‘life’ insurance.

General insurance

Many of us may already have some kind of general insurance, particularly if we own a car. General insurance provides protection for loss of your assets. This includes things like your home and its contents, your car, and even travel insurance.

General insurance is a great way to protect your property against the unexpected.

Life insurance

Life insurance protects you and your family from the financial consequences of sickness and injury. There are a range of different kinds of life insurance products, but we’ve made things easier by grouping them into three categories:

• Life insurance to protect the financial contribution you make to your family.
• Income protection to replace your income, living expenses, and business expenses.
• Trauma Insurance to protect against the financial consequences of trauma and disability.

Because we all shop differently, OnePath provides solutions that cater to all kinds of lifestyles. Here’s a brief explanation of the ways you can purchase insurance.

1. Visit a financial adviser

A financial adviser can help you choose the right types of life insurance cover, and work out how much of each you need. They can also help you structure your life insurance in a way that suits your circumstances and budget.

2. Top up your insurance through super

Many of us already have some life insurance within our superannuation fund. If you have life insurance within your fund, it will most likely be shown somewhere on your annual statement. To increase the amount of cover you have, contact your superannuation fund directly, speak to a financial adviser.

The cost of insurance is called the ‘premium’. It is calculated based on the amount of cover you want, and the risks associated with the asset you want to cover. You can usually pay this premium monthly, half yearly or annually.

Some factors can impact the cost of the premium – like the age of the asset you wish to protect, or in the case of life insurance, whether you are a smoker or non-smoker. You can also receive discounts for having multiple policies with OnePath, or for maintaining your insurance for a specified period

At OnePath, we stand by our commitment to deliver on our promise when customers need us most.

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When you’re a business owner, it can be hard to separate your personal finances from your business. And there’s no doubt one can have a significant impact on the other. So make sure you've got all your bases covered.

You’ve got a life of your own to protect, and no doubt there are people around you who would be impacted if something happened to you.

Life insurance can help you protect your family, your income, and your debts. This may include cover for death, total and permanent disability, and trauma conditions like cancer and heart attack. Click here to find out more.  There are also a number of ways you can use life insurance to help you secure the future of your business.

Insurance can be a valuable benefit you provide your employees – helping you attract and retain the best people. It can be provided within your employer super fund, or as a stand-alone benefit outside super.

Generally speaking, there are three types of ‘group insurance’ available:

• Group Life cover
• Group Salary Continuance cover
• Group TPD cover

If you contribute to a default super fund for your employees, you are generally required to provide a minimum level of death cover. To meet these requirements: the premium paid to the fund must be at least $0.50 per week (or equivalent) for members under age 56, or the fund must provide the minimum age-based level of cover as set out in the table below;

A financial adviser can help you design an insurance plan that suits the needs of your family, your business, and your employees.

They can also help you implement a number of strategies to make your insurance more cost-effective.

There are a number of strategies to help you reduce the effective cost of life insurance. These include:

• Taking advantage of tax-effective insurance inside super please refer below.
• Claiming your income protection and business expense insurance premiums as a tax deduction.
• Using the flexible features of your OnePath policy to put a hold on your premiums – e.g. if you’re not currently employed (note: these features will vary depending on the type of policy you have).
• Partner cover discount – if you and your partner take out cover at the same time you may receive a discount off the total premiums.

Because everyone’s circumstances are different, the best way to ensure your insurance is as tax and cost-effective as possible is to speak to your financial adviser.

An extremely tax-effective way to save for your retirement, superannuation can also provide a good home for some types of life insurance – helping you reduce the effective cost of your premiums.

How does it work?

You hold your life insurance – usually death and total and permanent disability (TPD) cover – inside your super account, and use your super contributions to pay your premiums.

Instead of purchasing a stand-alone insurance policy, where premiums are paid for from your after-tax income, using your super contributions means you’re effectively paying your premiums using pre-tax money.

How does insurance through super benefit you?

• You may not have to find extra money to pay for your premiums because these can be paid from your super fund account balance.
• Tax concessions apply for most premiums paid.
• Given the savings, you may be able to top up any stand-alone insurance policies (those you hold outside of super) and increase your overall coverage.
• Your qualifying dependants can receive unlimited tax-free lump sum payments if you, the insured, pass away.
• Premiums via group super plans can be cheaper because the super fund is buying the insurance 'in bulk'.

Are there any limitations?

• When an insurance policy is held inside super, the super fund is the owner of the policy. That means any benefits are paid to the fund before they’re paid to you or your beneficiaries. This could potentially slow down payment, and add an additional set of criteria you need to meet before the funds are released.
• Eroding your super balance to pay your insurance premiums can reduce your long-term retirement savings. To avoid this, you might consider salary sacrificing into your super to cover your insurance premiums.
• Insurance benefits for policies held outside super are often paid tax-free – regardless of who receives it. The same rules do not necessarily apply for benefits paid via a super fund. For example, if a beneficiary is a non-dependant child or adult, a death benefit may taxed at 16.5%.

To find out more about insurance through super, talk to your adviser.

After a lifetime of working hard and accumulating your wealth, you will want to know that your estate is distributed according to your wishes.  From providing funds for dependants, to ensuring the right people are looked after, life insurance can play a critical role in your estate planning affairs. This may include:

• Direct beneficiary nominations Many super funds allow you to complete a ‘binding nomination’ which enables you to direct your death benefit to the person you want to benefit. It’s a good idea to make a binding nomination where possible – giving you greater certainty over where your benefit will go.
• Providing funds for the surviving spouse and/or children
  Including insurance in your estate plan can help ensure your family has enough money to survive comfortably after you’ve gone.
• Re-distributing your estate You can use your insurance to distribute your estate in a way that is fair to you. This is especially relevant for people who want to leave their business to one child, but don’t want to disadvantage the others.
• Protecting the second family One third of Australian marriages involve at least one person who has been married before. Given this, the need to protect children from the first marriage as well as the spouse and children of second marriages can be important.
  Effective structuring of insurance can help ensure the right people benefit from your estate, and limit the possibility of your Will being contested

To discuss the role life insurance can play in protecting your estate, you should speak to your financial adviser. Alternatively, if you know what you want, you can either buy online or over the phone today.

If you’ve got any employees whose loss would leave a serious impact on the profitability of your business, you can take out a life insurance policy on those individuals.

If one of those key people then dies, your business will receive a lump sum payment to help you make the necessary changes to recover from their loss.

Just like you would typically take out life insurance to cover your mortgage and personal debts, business owners should also consider protecting any debts in the name of the business.

This can help ensure your business remains viable if you die or suffer a total and permanent disability – improving saleability, and helping protect your family from any financial consequences that may result.

Business expense insurance can be used to cover your fixed business expenses if you are totally or partially disabled.

This may include expenses like rent and lease payments, insurances, and wages for non income-producing employees – allowing you to keep your business running while you’re away from work.

If you’re in a business partnership, life insurance can be used to fund what’s known as a ‘buy sell’ arrangement. Say, for example, you own a business 50/50 with someone else. You might set up a buy sell arrangement that specifies that if one of you dies, the other will buy the other out to take full ownership of the business.

To fund this arrangement, the business takes out life insurance policies for each of you – with the sums insured equivalent to half the value of the business. If one of you then dies, the proceeds of the insurance policy are paid to the beneficiaries of the deceased – effectively cashing out their half of the business.

Full ownership of the business is then passed onto the surviving partner, without them having to find a large sum of money at short notice.

Insurance inside super can be a good way to make insurance more tax-effective, and more convenient, for you and your employees.