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A financial safety net through your superannuation

January 28, 2021

Moneysmart
(ASIC)

More than 70% of Australians that have life insurance hold it through super. Most super funds offer life, total and permanent disability (TPD) and income protection insurance for their members.

When reviewing your insurance, check if you’re covered through your super fund. Compare it with what’s available outside super to find the right policy for you.

Types of life insurance in super

Super funds typically offer three types of life insurance for their members:

• life cover — also called death cover. This pays a lump sum or income stream to your beneficiaries when you die or if you have a terminal illness.
• TPD insurance — pays you a benefit if you become seriously disabled and are unlikely to work again.
• income protection insurance — also called salary continuance cover. This pays you a regular income for a specified period (this could be for 2 years, 5 years or up to a certain age) if you can’t work due to temporary disability or illness.

Most super funds will automatically provide you with life cover and TPD insurance. Some will also automatically provide income protection insurance. This insurance is for a specified amount and is generally available without medical checks.

Cancellation of insurance on inactive and low balance super accounts

Under the law, super funds will cancel insurance on inactive super accounts that haven’t received contributions for at least 16 months. In addition, super funds may have their own rules that require the cancellation of insurance on super accounts where balances are too low.

Your super fund will contact you if your insurance is about to end.

If you want to keep your insurance, you’ll need to tell your super fund or contribute to that super account.

You may want to keep your insurance if you:

• don’t have insurance through another super fund or insurer
• have a particular need for it, for example, you have children or dependants, or work in a high-risk job

Insurance for people under 25

Insurance will not be provided if you’re a new super fund member aged under 25 unless you:

• write to your fund to request insurance through your super
• work in a dangerous job – you can cancel this cover if you don’t want it.

Use our Life insurance calculator

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

Superannuation and insurance can be complex. If you need help call your super fund or speak to a financial adviser.

Pros and cons of life insurance through super

Pros

• Cheaper premiums — Premiums are often cheaper as the super fund buys insurance policies in bulk.
• Easy to pay — insurance premiums are automatically deducted from your super balance.
• Fewer health checks — Most super funds will accept you for a default level of cover without health checks. This can be useful if you work in a high-risk job or have health conditions that can make it difficult to get insurance outside super. Check the product disclosure statement (PDS) to see the exclusions and treatment of pre-existing conditions.
• Increased cover — You can usually increase the amount of cover you have above the default level. But you’ll generally have to answer questions about your medical history and do a medical check.
• Tax-effective payments — Your employer’s super contributions and salary sacrifice contributions are taxed at 15%. This is lower than the marginal tax rate for most people. This can make paying for insurance through super tax-effective.

Cons

• Ends at age 65 or 70 — TPD insurance cover in super usually ends at age 65. Life cover usually ends at age 70. Outside of super, cover generally continues as long as you pay the premiums.
• Limited cover — The amount of cover you can get in super is often lower than the cover you can get outside super. Default insurance through super isn’t specific to your circumstance and some eligibility requirements may apply.
• Cover can end — If you change super funds, your contributions stop or your super account becomes inactive, your cover may end. You could end up with no insurance.
• Reduces your super balance — Insurance premiums are deducted from your super balance. This reduces your savings for retirement.

Check your insurance before changing super funds. If you have a pre-existing medical condition or are over age 60, you may not be able to get the cover you want.

How to check your insurance through super

To find out what insurance you have in your super you can:

• call your super fund
• access your super account online
• check your super fund’s annual statement and the PDS

You’ll be able to see:

• what type of insurance you have
• how much cover you have
• how much you’re paying in premiums for the cover

Your super fund’s website will have a PDS that explains who the insurer is, details of the cover available and conditions to make a claim.

If you have more than one super account, you may be paying premiums on multiple insurance policies. This will reduce your retirement savings and you may not be able to claim on multiple policies. Consider whether you need more than one policy or whether you can get enough insurance through one super fund.

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

When reviewing your insurance in super, see if there are any exclusions or if you’re paying a loading on your premiums. A loading is a percentage increase on the standard premium, charged to higher risk people. For example, if you have a high-risk job, a pre-existing medical condition or you’re classified as a smoker.

Money Smart (ASIC)

During these uncertain times, you might be nervous about your investments. It’s important to consider your long-term goals and make well-informed decisions.

Here are some steps to take with your super or investments in shares to ride out ups and downs in the investment markets.

1. Avoid focusing on market volatility

When investment markets are volatile, it can be a good time to review your investment strategy. But don’t make any rash decisions based on recent market falls.

Some investors panic when markets fall and decide to convert all their investments to cash. However, this means you lock in your losses and you miss out on any investment market recovery. Markets typically recover over the long-term.

Diversification across a broad range of asset classes is the best defence to ride out the ups and downs in the markets at any time.

Super in an uncertain investment market

If you’re close (5 years or less) to retirement, understand your retirement income options, take your time and avoid hasty decisions.

Consider getting financial information and guidance from:

• a licensed financial adviser
• your super fund
• a Services Australia Financial Information Service officer

2. Don’t try to time the market

It’s not a good idea to sell shares or other investments based on daily headlines.

Even the most skilled and experienced investors have difficulty predicting the best time to buy and sell. You might sell your investments only for markets to recover soon after.

Holding onto your investments, even during downturns, can be an effective strategy if your financial goals and situation haven’t changed.

3. Review your financial goals

Unexpected events can impact your financial goals.

Talk it over with your family, consider your long-term goals and only make well-informed decisions

If you’ve become unemployed, for example, you might need to cash out some of your investments for short-term expenses. Only do this if you have no savings to draw on and have explored all other options such government support and applying for financial hardship.

If you do have to draw on your investments, only cash out some of them, if you can. That way you can minimise your losses and still have some money invested when the market begins to recover.

If you’re using a financial adviser, now is a good time to ask them to review your financial plan.

4. Beware of investment scams

Beware of cold-calls and unsolicited investment offers and the promise of big returns. If it sounds too good to be true, it usually is.

Making hasty decisions, like panic selling or buying shares, can make you more vulnerable to investment scams.

Scammers exploit fear with fake investment offers promising to recover your losses.

Disclosure Statement: ClearView Financial Advice Pty Ltd ABN 89 133 593 012 AFSL No. 331367 | Matrix Planning Solutions Limited ABN 45 087 470 200 AFSL & ACL No. 238256. Head Office: Level 14, 20 Bond St, Sydney NSW 2000 General Advice Warning: This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication. You should read the Product Disclosure Statement (PDS) before making a decision about a product.

Want to learn more about investing but you’re not sure where to begin? Here are a few key terms every investor should know.

If you’re looking to build wealth for the future, buying a lottery ticket probably isn’t the way to go. A far more reliable option is to invest – but, unlike hitting the jackpot, investing takes time, patience and knowhow. For many of us though, trying to understand investment-speak is like learning another language. But don’t worry – once you get your head around a few basic concepts, you’ll be on your way towards becoming an educated investor. Here are a few common investment terms to get you started.

Portfolio
Your portfolio is the collection of assets you’ve invested in, which might include cash, bonds, shares and property. You may hold different amounts of each asset and they’re all likely to have different values. As an investor, you can manage your own portfolio and choose which assets to buy and sell at which time, or else you can hire a professional to manage it for you.

Cash
Cash refers to money you have that isn’t tied up in other assets. It’s often easily accessible when you need it, and it has a clear, specific value. As well as the hard cash you have on hand, it may also include other forms of money that can readily be converted into cash if you need it, such as the balance of your savings account.

Bonds
Investing in a bond essentially means lending money to the government or a company for a period of time, at either a fixed or variable interest rate. Then, when the bond expires, you get your money back with interest. Bonds are generally considered to be a more secure investment than shares because you know exactly how much you’ll earn and when – but the main risk is if the issuer cannot pay you back.

Shares
A share or stock is a portion of a company that’s available for investors to purchase. The amount of a company each investor owns is relative to the total number of shares available; for example, if a company has 100 shares and you buy one, then you become a shareholder who owns 1% of the company. If the company returns a profit and pays income to its shareholders, your dividend is based on the portion you own. Because shares are subject to stock market movements, their value is likely to go up and down in value over the short term – but they also have the potential to earn higher returns than cash or bonds in the long run. This means they may carry higher risk than these other assets.

Property
The most direct way to invest in property is to buy residential or commercial real estate and rent it out to a tenant. Your investment can then pay off in two ways: firstly, through the rental income, and secondly via an increased asset value if you sell it for a profit. You can also invest in property indirectly through an Australian Real Estate Investment Trust (A-REIT). These enable investors to pool their money together in a shared portfolio of commercial and industrial real estate.

Managed funds
When you invest in a managed fund, your money is pooled together with the money of other investors. A fund manager is responsible for all the fund’s investment decisions regarding buying and selling assets. The fund can pay a regular income, but the amount can increase or decrease depending on how the assets perform. The value of your managed fund investment (eg, units) can also fluctuate over time. Although investing in a managed fund gives you less control than direct shares, it may also give you access to a wider range of investment opportunities than you’d have as a sole investor.

Investment risk
When deciding which investments are right for you, it’s important to understand the trade-off between risk and return, and know how to manage investment risk. All investments carry some risk due to factors such as inflation, an economic downturn or a drop in a particular market – even if you choose an investment that’s traditionally considered ‘safe’, such as high-quality bonds. Every investment carries the risk of not returning your investment, and assets with greater changes in their capital value and pricing will move around a lot more, especially in the short term. It’s therefore essential to know and understand the risks of every investment you make.

Asset allocation
Asset allocation refers to the mix and value of the various assets and asset classes in your portfolio. The key to getting the right mix is to weigh up your goals, your appetite for risk and the length of time you’re planning to invest – which is different for everyone. Each asset class carries its own level of risk and return: generally speaking, ‘conservative’ assets like cash or bonds offer a safer but lower return than the potential returns on ‘growth’ assets like shares or property.

Diversification
Diversification is a strategy for reducing risk in your portfolio by investing in a range of assets, with some likely to perform better than others at different times. That way, when one type of investment is underperforming, your other investments will likely still be earning returns. For example, let’s say you’re only invested in shares. If there’s a downturn in the stockmarket, your entire portfolio will be negatively impacted. But if half of your portfolio is invested in other assets, then that half may not be affected.

Return on investment
Your return on investment (ROI) is the amount you earn from an investment relative to how much it cost you. By applying this simple formula, you can compare the profitability of different investments:

ROI = (Gain from Investment – Cost of Investment) divided by Cost of Investment

For instance, if you buy a house for $500,000, earn $25,000 in rental income, and then sell the property for $600,000 – after accounting for $60,000 in total costs (stamp duties, loan interest, legal and agents fees, rates and maintenance etc.) your ROI would be $65,000 divided by the $560,000 spent, which equals an ROI just shy of 12%.

Capital gain/loss
A capital gain is the profit you make when you sell an asset – or the increase in value between what you originally paid and how much the asset sells for. If you sell an asset for less than you bought it, this is called a capital loss. Because your net capital gain forms part of your taxable income, you generally need to report any net capital gain or loss in your tax return for that year. This is the difference between the total capital gain for the year and the total capital loss (including unused loss from previous years), less any relevant CGT discount or concessions.

Yield
The yield is the amount of income you receive from an investment, for example, interest, dividends, or rent. They’re usually calculated as an annual percentage based on the cost or value of the asset, and can vary depending on how the market and asset is performing or is expected to perform. But remember, a yield isn’t a guarantee of specific returns. It’s simply an indicator of how a particular investment is currently performing or is likely to perform in the near future.

Need more guidance?
While it’s good to understand the basics, it’s important to realise just how complex investment concepts really are. So if you’re new to investing – or even if you’re a seasoned investor – be sure to talk to your financial adviser to make sure your investments are in line with your lifestyle needs and goals.

 

IMPORTANT INFORMATION

This document has been prepared by Financial Wisdom Limited ABN 70 006 646 108, AFSL 231138, (Financial Wisdom) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. Mark Giles of Complete Financial Solutions (WA) – Financial Planning (ABN26 050 157 938) is an authorised representative of Financial Wisdom Limited (ABN) 70 006 646 108 AFSL 231138). Information in this document is based on current regulatory requirements and laws, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Financial Wisdom, its related entities, agents and employees for any loss arising from reliance on this document. This document contains general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision. Taxation considerations are general and based on present taxation laws and their interpretation and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information. This document contains general advice. It does not take account of your objectives, financial situation or needs. You should consider talking to a Financial Adviser before making a financial decision. This document has been prepared by Financial Wisdom Limited ABN 70 006 646 108, AFSL 231138, (Financial Wisdom) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. Financial Wisdom Advisers are authorised representatives of Financial Wisdom. Information in this document is based on current regulatory requirements and laws, as at 10 January 2018, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Financial Wisdom, its related entities, agents and employees for any loss arising from reliance on this document.

When you’re exploring aged care options for a loved one, the process can seem overwhelming. Here’s how to make it a bit easier.

Choosing when to place an elderly relative into a retirement home may be one of the toughest decisions you have to make. And while you want your loved one to be as comfortable as possible in their final years, it’s also important to be financially prepared.

With so many choices available and so many decisions to make, it helps to break down the process into a series of steps. And remember, when the time comes to begin your own aged care journey, you’ll want to be ready – so the sooner you start planning, the better.

Step 1. Finding the right place

The first step is to have your loved one’s needs assessed to determine the right level of care – from semi-independent living to round-the-clock nursing. Free assessments are conducted by community- or hospital-based Aged Care Assessment Teams. You should also consider any additional services your
relative might need in the future, so they won’t have to move again if their health declines.

If you can, visit different retirement facilities together to find an environment your loved one feels comfortable in. Be sure to investigate the social activities and meal options on offer, to ensure they’ll enjoy a happy and enriched life there.

Step 2. Calculating the costs

Although the federal government subsidises aged care costs, there are still various expenses that need be covered. For residential aged care, these include:

Accommodation fees. Prices are set by the facility but may also depend on your relative’s income and assets. Fees can be paid either as a lump sum or in regular instalments.

Basic daily care fee. This covers daily living costs and is fixed at 85% of the maximum single Age Pension – currently $50.66 per day.

Means-tested fee. This may be charged on top of your relative’s daily care fees, and is based on their assets and income. It’s currently capped at $27,232.33 a year.

Extra service fees. Additional fees may be charged for a more comfortable standard of accommodation, or special services like hairdressing or pay TV.

A financial adviser can help you calculate all these costs so you know exactly what to expect.

Step 3. Managing the paperwork

Because the fee amounts vary, you’ll need to lodge a Request for a combined assets and income assessment form with the Department of Human Services. This helps determine how much of a government subsidy your relative will receive towards the aged care costs.

Next, you can start applying directly to aged care facilities to find a suitable placement for your relative. A facility will contact you as soon as a slot becomes available, and they may also require you to enter into a Resident Agreement and Accommodation Agreement.

Step 4. What to do with the family home

Moving into aged care accommodation isn’t cheap, and many people who go into care need to sell their family home to cover the costs. This process can take many months, so you might also have to sort out a loan to manage the initial expenses while the property is on the market.

An alternative may be to rent out the property and use the rental income to help cover your aged care fees.

Your relative’s choice of whether to sell, or keep and rent out their former family home can have significant consequences for the aged care fees they pay, as well as any social security entitlements they receive, so speak to a financial adviser about the best option before taking any action.

Step 5. Making the move

Packing up an entire house or flat and moving into a single room of a retirement home requires a lot of work. As space will be limited, you’ll need to prioritise the most important or valuable items (including those with sentimental value) for your relative to take with them, and then sell or give away the rest.

There will also be other practicalities to deal with, such as changing their postal address and advising Centrelink about the move. Finally, make sure you include your loved one in as much of the decision-making as possible, to help make the transition as painless for them as you can.

 

IMPORTANT INFORMATION
This document contains general advice. It does not take account of your objectives, financial situation or needs. You should consider talking to a Financial Adviser before making a financial decision. This document has been prepared by Financial Wisdom Limited ABN 70 006 646 108, AFSL 231138, (Financial Wisdom) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. Financial Wisdom Advisers are authorised representatives of Financial Wisdom. Information in this document is based on current regulatory requirements and laws, as at 20 September 2018, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted. by Financial Wisdom, its related entities, agents and employees for any loss arising from reliance on this document. This document has been prepared by Financial Wisdom Limited ABN 70 006 646 108, AFSL 231138, (Financial Wisdom) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. Mark Giles of Complete Financial Solutions (WA) – Financial Planning (ABN26 050 157 938) is an authorised representative of Financial Wisdom Limited (ABN) 70 006 646 108 AFSL 231138). Information in this document is based on current regulatory requirements and laws, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Financial Wisdom, its related entities, agents and employees for any loss arising from reliance on this document. This document contains general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision. Taxation considerations are general and based on present taxation laws and their interpretation and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information.

Colonial First State

By Carlos Cacho, Analyst, Economic and Market Research Colonial First State Global Asset Management

 

Summary

The Reserve Bank of Australia (RBA) Board met on 1 August and left the official cash rate on hold at 1.5%, as widely expected. There has been no change in the official cash rate since August 2016.

In contrast to the strength in business confidence, consumer confidence was weaker, falling 1.2% for August and below its long-term average.

The S&P/ASX 200 Index finished the month largely flat, for the third consecutive month. This return masked some considerable divergence in the performance of various industry sectors.

Hurricane Harvey led to widespread destruction in Texas that will require a significant recovery effort. This also saw a sharp increase in gasoline prices.

A downward trend in bond yields continued in August, as investors took shelter in safe-haven assets in the face of geopolitical unrest.

Australia

The RBA continues to balance three key risks in the economy for their monetary policy deliberations:

• the outlook for inflation,
• the strength or otherwise of the labour market, and
• Household financial

The RBA released its quarterly Statement on Monetary Policy (SMP). The key development in the SMP was a slight downgrade adjustment to the near-term GDP growth forecasts for Australia, and a slight upward adjustment to the headline inflation forecast. The GDP estimate for year-end 2017 has been revised down to 2%– 3%, from 2.5%–3.5% in the May edition. The June 2018 figures now have the mid-point for growth at 3.0%, down from 3.25%. These lower forecasts were driven by a weaker Q1 GDP result and tighter financial conditions, primarily driven by a stronger Australian dollar.

The headline CPI forecast for June 2018 and December 2018 was revised to 1.75%–2.75%, up from 1.5%–2.5%. This was driven by an upward revision to utility prices, despite the stronger AUD.

The NAB business survey for July showed business confide