What is insurance?
Insurance is a form of protection - a way to protect yourself, your family and the things you own if something goes wrong. It enables you to replace orrepair your assets, whether those assets are your belongings or your capacity to earn income.
Everybody's circumstances are different, but insurance is important for everybody to consider. Your need for insurance will change as you movethrough the different stages of your life.
There are many different types of insurance, and we can help you find theright level of protection for your needs.
What types of insurance are there?
There are many types of insurance. Car or home/contents insurance allows you to insure your belongings. Personal insurance policies enable you to insure yourself and your ongoing wellbeing.
Personal insurance provides protection against sickness, injury and death, and includes:
Life insurance
Total and Permanent Disability (TPD) insurance Trauma insurance, and
Income protection.
While insurance doesn't remove the risk of something going wrong, it provides you and your family with protection and financial security if something does happen.
The amount of insurance you need is affected by:
how much you earn
your cost of living your assets
your liabilities
your relationship status (whether you are married, in a de facto relationship or single), and
how many dependants you have.
Life insurance
Life insurance protects your family by paying a lump sum if you die. Most people think that life insurance is only for the main income earner, but the personwho takes care of the family is also a large contributor to the home and can be insured.
Life Insurance
Can be purchased inside or outside of superannuation - Many super funds provide life insurance. Premiums can be paid from contributions made to your fund by your employer, by you personally or simply deducted from your account balance in the fund.
Tax treatment
Outside super
Premiums are generally not tax deductible.
The benefit payment is tax free.
Broad range of potential beneficiaries.
Inside super
Premiums are tax deductive for the super fund.
The benefit payment may be taxed, depending on who receives it.
Limited range of potential beneficiaries.
Superannuation contributions made to fund premiums may attract various tax concessions.
Total and permanent disability insurance
TPD cover provides a lump sum payment if you suffer a disability before retirement and can't work again or can't work in your usual occupation of chosen field of employment.
TDP Insurance
Can be purchased as an add on, or as stand alone policy
You can buy TPD as an add on to term life insurance, or as a stand alone product.
You can also get TPD as an extra benefit from your super fund or as part of a trauma insurance product.
Tax treatment.
Outside super
Premiums are not tax deductible.
The benefit payment is tax free if paid to the injured person or their relative.
Inside super
Premiums are generally tax deductible for the super fund.
Superannuation contributions made to fund premiums may attract various tax concessions.
The benefit payment you receive may be taxed.
Limits apply to the types of policy available inside super.
Trauma insurance
Trauma (or critical illness) insurance provides a cash lump sum if you suffer a specified illness or injury, such as heart attack or stroke. Advances in medical treatment have increased the need for trauma insurance. The improved chance of survival means that although you are more likely to survive, you are alsomore likely to have substantial medical bills to pay.
Trauma Insurance
Stand alone policy or additional options
Trauma insurance is usually purchased as a stand alone policy, but can be purchased with additional options, such as a TPD benefit.
Trauma insuranceisgenerally not available through superannuation
Cost
Trauma cover is relatively more expensive than other forms of life insurance because of the greater probability of a trauma event occurring.
Tax treatment
Benefits are tax free
There is no restriction on how you use the payments.
Premiums are not tax deductible.
Income protection
Income protection insurance ( also known as salary continuance or income replacement) provides a monthly payment to replace lost income if you are unable to owrk due to injury or sickness.
Income protection
Level of cover
The maximum allowable cover is generally 75 per cent of your gross wage.
Benefit period
The longer the benefit period, the higher the premium.
Can be purchase inside or outside of superannuation
Income protection is available through your super fund or can be purchase as a stand alone policy outside of super.
Tax treatment
Premiums are generally tax deductible if cover is held outside super.
The payments received are considered income and are subject to tax.
Insurance as part of your superannuation
Life, TPD and income protection insurances are all offered within superannuation. If your insurance is held within superannuation, the cost of the premiums is withdrawn from your superannuation balance.
It is important to work out the best way to structure your insurance, whether inside or outside superannuation, or a combination of the two.
Benefits to having insurance in your superannuation may include:
automatic acceptance - there's generally no need to complete medical checks
cheaper cover - from the bulk discount typically available to superannuation funds, and
tax concessions for super contributions - super contributions may attract various concessions including tax deductibility, tax offsets, or Government co-contributions. So you may be able to pay
your premiums by making tax advantaged super contributions.
In the event of a claim, you or your dependant may be able to receive the benefit as a tax effective income stream.
Disadvantages of having insurance in your superannuation include:
limitations on the types of cover available erosion of your retirement savings
potential delays in the payment of benefits in the event of death, and
potentially higher tax rates on receipt of insurance proceeds - for example, superannuation death benefits paid to a non- dependant may be taxed at up to 32 per cent.
Keep your insurance up to date
Insurance is not static, and your need for cover may change as you move through different stages in your life. As part of the financial adviceprocess, we would regularly review your insurances to make sure that you are adequately protected if your circumstances change.
This information is correct as of July 2023.
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This information is provided by AMP Financial Planning Pty Limited (AMPFP) ABN 89 051 208 327 AFSL 232 706and Charter Financial Services Limited (Charter) ABN 35 002 976 294 AFSL 234 655 Ph. 1800 021 466, both wholly owned subsidiaries of AMP and members of the AMP Group. Any advice contained in this document is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Before making anydecision, you should consider the appropriateness of the advice with regard to those matters. If you decide to purchase or vary a financial product, your advisers, AMPFP, Charter its associates and other companies within the AMPGroup may receive fees and other benefits, which will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. Ask us for more details. Any general tax informationprovided is intended as a guide only and not to be relied upon. If you no longer wish to receive direct marketing, please call your adviser. To view our privacy policy visit AMP group privacy policy. AMP Advice is a trademark registered to AMP Limited ABN 49 079 354 519
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