Products

Types of Insurance
The following is a description of the types of insurances available and some of the insurance terms and terminology that is used to describe these policies.

Term Life or Death policies

Term Life insurance (also known as Death policies) are offered to individuals (the Life Insured). If the Life Insured dies then the death benefit is paid the policy owner (not necessarily the Life Insured). These policies are paid if the Life Insured dies from any cause.

Some policies, usually offered through Associations or attached to credit cards, offer Accidental Death.  These policies usually require no underwriting and do not pay a benefit in the event of a death by sickness or illness. (Complete Cover does not usually recommend these types of Accidental only policies.)

Most Term Life policies are offered on a ‘non-cancellable’ contract basis. This means that once the policy is underwritten and accepted by the insurer, they can not cancel the policy unless the premiums are not paid or the policy reaches its maturity date. This is regardless of the state of your health after they have accepted and issued your policy.

Term Life can be owned under superannuation or non superannuation. The purpose and need of the insurance will determine the most appropriate structure.

Total & Permanent Disability

Any Occupation TPD
The most common definition of “any occupation” is, ‘if you have been absent from or unable to work because of a sickness or injury for a continuous period of 6 consecutive months and that you are incapacitated to such an extent that you are unlikely ever to work again in any occupation for which you are reasonably suited by education, training or experience.

Own Occupation TPD

The most common definition of ‘own occupation’ is, ‘if you have been absent from or unable to work because of a sickness or injury for a continuous period of 6 consecutive months and that you are incapacitated to such an extent that you are unlikely ever to be able to engage in your own occupation or profession.

The Own Occupation definition is the preferred definition.  The reason is that, at the time of a claim the insurer looks at the occupation you are currently in (at the time of application) and not an occupation you could possibly perform.

The advantage of this definition is that if your income is reduced by a disability, but you may still be able to work in a lower paying occupation, the Own Occupation benefit is still paid. The “Any Occupation” definition may not.

To receive a TPD policy benefit the Life Insured is required to meet the definition of disablement in their contract for a period of 3 or 6 months (depending upon the insurer). The benefit is therefore not paid immediately but when these conditions have been met.

TPD can be owned under superannuation or non superannuation. The purpose and need of the insurance will determine the most appropriate structure.

Trauma

Trauma insurance is a benefit that is provided on the positive diagnosis of a health related illness.  Unlike TPD, Trauma benefits are paid immediately on the positive diagnosis of the defined events.  The Trauma benefit that is paid has no bearing on your ability to perform your occupation.

Some of the defined events are: Aplastic Anemia, benign Intracranial tumour, Blindness, Cancer, Chronic Lung Disease, Coma, Coronary Artery By-Pass Surgery, Coronary Artery Disease, Deafness, Dementia, Diplegia, Encephalitis, Heart Attack, Heart Surgery, Liver Disease, Loss of Speech, Major Burns, Major Head Trauma, Motor Neurone Disease, Multiple Sclerosis, Parkinson’s Disease, Primary Pulmonary Hypertension, Quadriplegia, Renal Failure, Stroke.

Trauma can be owned under superannuation or non superannuation. It is rare that Trauma is owned by superannuation and is usually placed under non superannuation arrangements. The purpose and need of the insurance will determine the most appropriate structure.

Income Protection

Income Protection provides a monthly income.  The monthly income is based on your insurable income.  This may be made up of cash and some additional employer sponsored package items. Eg a company car.

The monthly Total Disability benefit is based on up to 75% of insurable income.  The benefit is paid after a waiting period (usually 30 days), and is paid for a specified benefit period (usually to age 65 or 70). Again the type of benefit will depend upon the individual circumstances of the life insured.

If you are not Totally Disabled and can work on a part time basis then a monthly Partial Disability benefit is based on a formula. Most policies pay the benefit on the following formula:

Business Expenses Insurance

Where a business relies upon one or more persons to provide revenue to the continued operation of the business, a Business Expenses policy is used to support the business in paying its monthly expenses.

These are items such as rent, equipment leases, wages for non income producing employees.  These expenses are calculated at the time of application based on the businesses Profit and Loss statements and the impact of the Insured Person on the income of the business.

Business Expenses Policies pay benefits on an ‘as incurred’ basis.  They typically have 14, 30, 60 or 90 day waiting periods and a benefit period of 12 months. Some contracts allow for the Business Expenses benefit period to be extended for up to 6 months to allow for any un-incurred expenses to be paid during the extended period.

Insurance Terms

Ownership of policies
The owner of an insurance policy may be any person, related or not.  The owner of the policy is the person or entity (e.g Company or Self Managed Superannuation Fund) that will receive the benefit.  The owner of a policy (not the Life Insured) has control over the policy, i.e. to alter, to terminate or suspend the policy.

Premiums payments

Premiums do not have to be made by the Life Insured or the Policy Owner.  It may be the Life Insured, a lending institution, a superannuation fund or a Company.

Tax deductibility of premiums and taxation of benefits
Superannuation funds are able to claim insurance premiums for Death and Total and Permanent Disability (TPD) and Income Protection policies.

Premiums for Death and TPD (outside superannuation) and Trauma policies are not tax deductible.

Income Protection and Business Expense premiums are tax deductible.

In a business situation, insurance premiums (Death, TPD and Trauma), where the benefit is for revenue purposes such as Key Person Insurance, the premiums are tax deductible, and the benefit is assessable as revenue. In other circumstances such as Business Succession funding or Key Person Insurance (Debt) the premiums are not deductible.

Tax on benefit payments

Death benefits received from insurance policies under superannuation are treated separately for dependants and non-dependants.

Under superannuation the benefits received are tax exempt if the beneficiary is the Life Insured’s spouse, former spouse, the Life Insured’s child under the age of 18 or any person who had an interdependent relationship just before they died.

Benefits received by any other individual will be taxed on the benefit received. The tax payable will depend upon the individual circumstances at the time of receipt.

Under superannuation, in some instances, TPD benefits may attract tax. The taxation applied will depend upon the circumstances of the Life Insured.

Death, TPD and Trauma benefits outside the superannuation environment are not taxed.

Income Protection and Business Expenses benefits received are taxed as normal income and the tax applicable will depend upon the Policy Owner’s tax position at the time.

Stepped and Level premiums

Stepped premiums are based on the Life Insured’s age next birthday (ANB). The premium is set at a rate for that age. On the anniversary of the policy issue date the policy’s rate will ‘step’ higher based on the Life Insured new ANB. This will continue until the policy reaches its maturity date or it is cancelled by the policy owner.

Level Premiums are based again on the Life Insured’s ANB. The difference is that this rate is used for the life of the policy. On the anniversary of the policy issue date the premium remains the same.

If however, the premium is increased due to a Consumer Price Index increase then the rate used for he increase is the new ANB rate for the Life Insured.

Level premiums are typically 20% - 30% more expensive than stepped and the cross-over point where Level becomes more economic over stepped is usually around 7-10 years into the policy life.

Each situation needs to be analysed to determine the appropriateness of stepped or level.

GST

There is no GST applicable to insurance premiums.