Archives for September 2014

Still paying for insurance? Make sure it’s right for you

Why have personal insurance?

Your work life has come to an end, so it’s time to let go of the things you don’t need any more. You’ve probably ditched the work clothes and the briefcase and said goodbye to the 9 to 5 routine. But should you let go of your personal insurance too?

Through your working life, you may have taken out some personal insurance – cover to help give you or any dependants financial security if you were unable to work due to sickness or injury, or if you should become terminally ill or pass away.

Common types of personal insurance are:

  • Income protection insurance – to cover some of your income if you’re off work temporarily due to illness or injury.
  • Trauma insurance – to give you an income if a serious illness means you can’t work for a length of time.
  • Total and permanent disablement (TPD) insurance – if you become permanently incapacitated and can no longer work.
  • Life insurance – to provide your dependants with a lump sum payment if you pass away or become terminally ill.

You may have taken out your cover at a particular stage of your life – perhaps when you took out a mortgage or started a family. Or you may have been given cover through your super. Either way, as you move into a new stage of life, it’s important to review your insurance needs, so you’re not paying for something you don’t need.

Insuring your income

If you are still working – for instance, you are transitioning to retirement and you rely on the money you earn, it can still be a good idea to have insurance that protects your income. By having income protection and trauma insurance in place, a late setback in your health won’t necessarily scuttle your retirement plans.

Nevertheless, if you’ve reduced your work hours as you ease into retirement, it can make sense to reduce your level of income protection or trauma protection too. As some policies will only pay a benefit equal to what you’re earning now, check that you’re not over-insured and paying too much in premiums.

Once you stop working completely, there’s no need to have income protection and trauma insurance, as your income no longer relies on your ability to work.

Life insurance in retirement

If you and your partner are retired and have a reliable income from your super and other investments and you have no other dependants, it could make sense to cancel your life insurance policy. Remember, insurance premiums generally go up the older you get, so ceasing your policy could save you a good sum of money. Many insurance policies cease once you reach a certain age — so if you don’t feel you need it to provide for your partner if you should die, then it may not be worth the premiums you pay.

However, you may want to have a small amount of life cover to be able to provide money for the costs of your funeral or other final expenses, such as outstanding debts or bills. Some people also keep life insurance so they can leave money to a cause that’s dear to their heart or to boost the inheritance they leave to their loved ones.

Ask the experts

To find out more about protecting your retirement income and keeping your family’s financial future secure, contact us on 02 9875 2966.

Three things empty nesters should do before retirement

Who are empty nesters?

Your children have left home, leaving you with time on your hands to do the things you’ve always dreamt of doing. But first of all, here are three things you need to take care of.

Empty nesters are a varied group. Many are living with partners, but quite a few live alone. Some own their homes outright, while others are still paying off their mortgage, or renting their home. And while a few are only years away from retirement, many still have a decade or two to go.

But there are two things that they all share in common. Firstly, now that their children have left home their lifestyle will change — sometimes considerably. Secondly, most are starting to think more seriously about their retirement as it gets closer.

If you’re an empty nester, here are three things you should do to prepare for your next stage of life.

1. Pay down debt

Now that the kids have left home and are no longer your financial responsibility, you’ll probably find yourself with surplus income. Of course, it’s natural that you’ll want to spend some of that doing things like travelling or renovating your home. But if you still have a mortgage, paying this down (and any other personal debt) should be your priority.

Why? Because owning your home outright by the time you retire will mean your retirement income won’t need to go on paying interest that’s not tax-deductible, such as your mortgage or credit card debt. As you won’t be earning any more, it’s important that you make your retirement funds last as long as possible.

2. Review your insurance

If your kids are no longer dependants, you’ve paid off your mortgage or you’re only supporting yourself, you may need less insurance. However, if you’re still working, it’s not a good idea to cancel all your TPD, Trauma or Income Protection Insurance just yet. That’s because you are still depending on your income — so if you were to become seriously ill or disabled, you will still need this protection.

And, even if you no longer financially support your children, your spouse or partner may need financial support to cope if you were to pass away or become terminally ill. Life insurance can also help to cover expenses such as funeral expenses and any remaining debts you have. However, as insurance premiums generally get more expensive as you get older, it may be worth reviewing how much cover you really need.

3. Ask the experts

Being an empty nester can bring a renewed sense of financial freedom with fewer expenses and mouths to feed — but it’s important to use this time to put your money to work. To find out more about how to make the most of this stage of life, speak to your financial adviser today on 02 9875 2966.

Out with the bad, and in with the good

Not all debt is bad — used wisely, debt can be an excellent way to build wealth.

In the last decade, household debt has decelerated quite significantly — down from an average rate of 10% each year in the early 2000s to just 2% at the end of 2013.[1] As a nation, it seems we’ve become far more conscious about our spending and borrowing habits since the Global Financial Crisis.

Cutting back on unnecessary debt is a good thing. But ‘good’ debt can be an excellent tool for building wealth and a financially secure future. Let’s look at how to avoid the bad stuff — and get more of the good.

Cutting out the bad

The kind of debt you want to steer clear of is unsecured debt — in other words, a loan that isn’t backed by an asset that you could sell if you got into trouble paying your creditor back. An example could be using your credit card to pay for a holiday, a night on the town or (more sensibly) your electricity bill or car registration.

You should also try to avoid borrowing to buy depreciating assets, such as computers or cars. Of course, sometimes these items are a necessity, and if it’s a big purchase you mightn’t have the cash. But if you must borrow for these items, make sure to shop around for the best interest rate and have a payment plan that you stick to, to pay it off as quickly as you can.

Payday loans are another type of debt to avoid — while they may seem like a fast and convenient way to access cash, their interest rates can be crippling and can put you deeper in financial stress.

Getting more of the good

Bad debt saps your savings and costs you more in interest. Good debt, on the other hand, can be put to work to make you money. A classic example is borrowing to buy your home — which generally increases in value over time — or borrowing to buy business equipment, which helps to generate extra income.

As an investor, gearing (borrowing to purchase shares or property) can allow you to build an investment portfolio more quickly than if you just used your own money. This could potentially increase your earnings and your capital gains. What’s more, borrowing to invest is generally tax deductible, which can provide additional benefits.

Finally, as you get closer to retirement you could sell your investments then put the proceeds into your super, building your retirement nest egg and potentially paying less tax.

However, while gearing increases your potential to make money, it also multiplies your losses if your investments fall in value. It’s also important to have appropriate insurance in place when implementing a gearing strategy. Given the Australian tax system is complex and everyone’s tax situation is different, it’s important to seek professional advice before deciding whether a gearing strategy is right for you.

Ask the experts

To find out more about strategies for using debt wisely, contact us on 02 9875 2966.

Dealing with worst case scenarios

There’s no point in worrying about the future. But that doesn’t mean you shouldn’t be prepared. Having a plan means you can relax and enjoy the present, knowing that whatever happens, you and your loved ones will be taken care of.

Nobody likes to dwell on the worst, especially when life is going smoothly. But this is actually the time when you should think about what plans you have in place if you were to get seriously — or even fatally — ill or injured. Thankfully, insurance can go a long way in protecting your family if the worst should happen.

Have you insured your life?

Life insurance is about taking care of the ones you leave behind. By paying a regular premium, you can help make sure that if you passed away, your loved ones would receive a payout to help with expenses, like mortgage repayments, school fees and day-to-day living costs.

Life insurance can also help you if you become terminally ill, with a payout to help cover your medical expenses and other costs.

It’s always a good idea to get life insurance when you’re healthy. Otherwise you may find you won’t be covered for a pre-existing illness, and premiums usually get more expensive as you get older.

Insurance through super — is it a good idea?

A lot of people choose to get their life insurance through super — and there are some good reasons to do so.

Firstly, life insurance through super may be more affordable. This is because super funds can buy policies in bulk and therefore get them cheaper – and pass on some of their savings to you. As long as there is money in your super account, you can be guaranteed that your premiums will be covered. This means you won’t risk having your policy cancelled because there is not enough money in your account to cover your premiums.

If your life insurance is being paid out of your super, it’s also less likely that you’ll be tempted to try and save money when times are tough by cancelling your policy. So you won’t leave your family vulnerable if you pass away suddenly or become terminally ill.

What to look out for

Before you take out insurance through super, you should check the level of cover that your super fund offers and make sure that your life insurance payout will be enough to cover the kind of expenses your family needs. Also, if you change super funds or leave your job, find out whether your insurance will be cancelled or whether you can transfer your policy to your new fund.

If you have more than one super account, make sure you’re not wasting money by having more life insurance policies with each account.

Finally, review your life insurance payments if your life situation changes — for example, if you have another child, or your relationship status changes. Otherwise it’s possible that your insurance payout may not go to the people you intend to cover.

Cover for serious illness

Another important cover you should consider is trauma insurance, which covers you if you get diagnosed with serious illness like cancer, stroke or heart attack. This insurance will give you and your family a lump cash sum to pay for medical care and takes off the financial pressure while you recover.

You can no longer get trauma insurance through your super. So it’s important to talk to your financial adviser or your insurer about setting this up.

Ask the experts

To find out more about protecting your family if something should happen to you, contact us on 02 9875 2966

Economic update September 2014

 In the latest update, Brian Parker, Head of Portfolio Specialists Group, MLC reviews events in markets during August.
He discusses:
· how global share markets have continued to deliver decent returns, despite the uncertain geopolitical environment
· why the actions of central banks continue to be a key factor driving markets
· whether improvements in Australia’s non-mining economy can offset the decline in mining investment and falling prices for key resource exports
· how MLC’s multi-asset portfolios are positioned