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Financial protection for your loved ones when you die
Sudden death can place financial stress on those who depend on you. If this happens, life cover can help them pay the bills and other living expenses.
What is life cover?
Life cover is also called ‘term life insurance’ or ‘death cover’. It pays a lump sum amount of money when you die. The money goes to the people you nominate as beneficiaries on the policy. If you haven’t named a beneficiary, the super trustee or your estate decides where the money goes.
Life cover may also come with terminal illness cover. This pays a lump sum if you’re diagnosed with a terminal illness with a limited life expectancy.
Accidental death insurance is different from life cover. It will only payout if you die from an accident. It will not provide cover if you die from an illness, disease or suicide. This type of cover often has a lot of exclusions.
To understand what’s covered under a policy and the exclusions, read the Product Disclosure Statement (PDS).
Decide if you need life cover
If you have a partner or dependents, life insurance can help repay debt and cover living costs if you die.
If you don’t have a partner or people who depend on you financially, you may not need life cover. But consider getting trauma insurance, income protection insurance or total and permanent disability (TPD) insurance in case you get sick or injured.
How much life cover you might need?
To decide how much life cover to get, consider how much money you or your family would:
- need — to pay the mortgage, credit cards and any other debts, childcare, school fees and ongoing living expenses.
- receive — from super, savings, the sale of any investments, your paid leave balance, and support from your extended family.
The difference between these is the amount of cover you should get.
Use our Life insurance calculator
Work out if you need life insurance and how much cover you might need.
If you need help deciding if you need life cover, reach out to the Sherlock Wealth team for assistance here.
How to buy life cover
Check if you already hold life insurance through super. Most super funds offer default life cover that’s cheaper than buying it directly. You can increase your level of cover through your super fund if you need to.
You can also buy life cover from:
- a financial adviser
- an insurance broker.
- an insurance company
Life cover can be bought on its own or packaged with trauma, TPD or income protection insurance. If it’s packaged, your life cover may be reduced by any amount paid on other claims in the package. Check the PDS or ask your insurer.
Before buying, renewing or switching insurance, check if the policy will cover you for claims associated with COVID-19.
Life cover premiums
You can generally choose to pay for life cover with either:
- stepped premiums — recalculated at each policy renewal, usually increasing each year based on the higher chance of a claim as you age.
- level premiums — charge a higher premium at the start of the policy, but changes to cost aren’t based on your age so increases happen more slowly over time.
Your choice of stepped or level premiums has a large impact on how much your premiums will cost now and in the future.
Compare life cover.
Once you know how much life cover you need, shop around, and compare:
- benefits and policy features
- exclusions
- waiting periods before you can claim.
- limits on cover
- the cost of the premiums — now and in the future
A cheaper policy may have more exclusions, or it may become more expensive in the future. You can find information about the policy on the insurer’s website or in the Product Disclosure Statement (PDS).
Use our Life insurance claims comparison tool
Compare how long it takes different insurers to pay a life cover claim and the percentage of claims they pay out.
What you need to tell your insurer
You need to tell your insurer anything that could affect their decision to insure you. You need to give them this information when you apply, renew or change your level of cover.
Insurers usually ask for information about your:
- age
- job
- medical history
- family history, such as a history of disease
- lifestyle (for example, if you’re a smoker)
- high-risk sports or hobbies (such as skydiving)
If an insurer doesn’t ask for your medical history, it may mean that the policy has more exclusions.
The information you provide will help the insurer to decide:
- if they should insure you
- how much your premiums will be.
- terms and conditions for your policy
It is important that you answer the questions honestly. Providing misleading answers could lead an insurer to deny a claim you make.
Making a life cover claim
If someone close to you dies and you need to make a claim, or if you need to make a terminal illness claim, see how to make a life insurance claim.
If you would like help reviewing or selecting appropriate life insurance cover, please reach out to the Sherlock Wealth team here to help you look at what’s right for you.
Source: MoneySmart
(ASIC)
The recent sharp rise in bond rates may not be a big topic of conversation around the Sunday barbecue, but it has set pulses racing on financial markets amid talk of inflation and what that might mean for investors.
US 10-year government bond yields touched 1.61 per cent in early March after starting the year at 0.9 per cent.i Australian 10-year bonds followed suit, jumping from 0.97 per cent at the start of the year to a recent high of 1.81 per cent.ii
That may not seem like much, but to bond watchers it’s significant. Rates have since settled a little lower, but the market is still jittery.
Why are bond yields rising?
Bond yields have been rising due to concerns that global economic growth, and inflation, may bounce back faster and higher than previously expected.
While a return to more ‘normal’ business activity after the pandemic is a good thing, there are fears that massive government stimulus and central bank bond-buying programs may reinflate national economies too quickly.
The risk of inflation
Despite short-term interest rates languishing close to zero, a sharp rise in long-term interest rates indicates investors are readjusting their expectations of future inflation. Australia’s inflation rate currently sits at 0.9 per cent, half the long bond yield.
To quash inflation fears, Reserve Bank of Australia (RBA) Governor Philip Lowe recently repeated his intention to keep interest rates low until 2024. The RBA cut official rates to a record low of 0.1 per cent last year and launched a $200 billion program to buy government bonds with the aim of keeping yields on these bonds at record lows.iii
Governor Lowe said inflation (currently 0.9 per cent) would not be anywhere near the RBA’s target of between 2 and 3 per cent until annual wages growth rises above 3 per cent from 1.4 per cent now. This would require unemployment to fall closer to 4 per cent from the current 6.4 per cent.
In other words, there’s some arm wrestling going on between central banks and the market over whose view of inflation and interest rates will prevail, with no clear winner.
What does this mean for investors?
Bond prices have been falling because investors are concerned that rising inflation will erode the value of the yields on their existing bond holdings, so they sell.
For income investors, falling bond prices could mean capital losses as the value of their existing bond holdings is eroded by rising rates, but healthier income in future.
The prospect of higher interest rates also has implications for other investments.
Shares shaken but not stirred
In recent years, low-interest rates have sent investors flocking to shares for their dividend yields and capital growth. In 2020, US shares led the charge with the tech-heavy Nasdaq index up 43.6%.iv
It’s these high growth stocks that are most sensitive to rate change. As the debate over inflation raged, the so-called FAANG stocks – Facebook, Amazon, Apple, Netflix and Google – fell nearly 17 per cent from mid to late February and remain volatile.v
That doesn’t mean all shares are vulnerable. Instead, market analysts expect a shift to ‘value’ stocks. These include traditional industrial companies and banks which were sold off during the pandemic but stand to gain from economic recovery.
Property market resilient
Against expectations, the Australian residential property market has also performed strongly despite the pandemic, fuelled by low-interest rates.
National housing values rose 4 per cent in the year to February, while total returns including rental yields rose 7.6 per cent. But averages hide a patchy performance, with Darwin leading the pack (up 13.8 per cent) and Melbourne dragging up the rear (down 1.3 per cent).vi
There are concerns that ultra-low interest rates risk fuelling a house price bubble and worsening housing affordability. In answer to these fears, Governor Lowe said he was prepared to tighten lending standards quickly if the market gets out of hand.
Only time will tell who wins the tussle between those who think inflation is a threat and those who think it’s under control. As always, patient investors with a well-diversified portfolio are best placed to weather any short-term market fluctuations.
If you would like to discuss your overall investment strategy, please reach out to the Sherlock Wealth team here to help look at what’s right for you.
i Trading economics, viewed 11 March 2021, https://tradingeconomics.com/united-states/government-bond-yield
ii Trading economics, viewed 11 March 2021, https://tradingeconomics.com/australia/government-bond-yield
iii https://www.reuters.com/article/us-oecd-economy-idUSKBN2B112G
v https://rba.gov.au/speeches/2021/sp-gov-2021-03-10.html
vi https://www.washingtonpost.com/business/2020/12/31/stock-market-record-2020/
vii https://www.corelogic.com.au/sites/default/files/2021-03/210301_CoreLogic_HVI.pdf
While all Australians have been affected in some way by the global pandemic, women have borne the brunt of its impacts. Here are why – and some tips of what women can do to recover financially.
In this checklist, we highlight some key questions you should be considering when assessing your personal finances
The principle of ‘salary sacrificing’ may not sound very appealing. After all, who in their right mind would voluntarily give up their hard-earned cash. But it can have real financial benefits for some in terms of reducing your taxable income, which could see you pay less at tax time.
As we nudge ever closer to the end of the financial year, it’s worth taking a look at salary sacrificing to see if it’s a worthwhile strategy to put into place for you.
A salary sacrifice arrangement is also commonly referred to as salary packaging or total remuneration packaging. In essence, a salary sacrifice arrangement is when you agree to receive less income before tax, in return for your employer providing you with benefits of similar value. You’re basically using your pre-tax salary to buy something you would normally purchase with your after-tax pay.
How does salary sacrifice work?
The main benefit of salary sacrificing is that it reduces your pre-tax income, and therefore the amount of tax you must pay. For example, if you’re on a $100,000 income, you may agree to only receive $75,000 as income in return for a $25,000 car as a benefit.
Doing this would reduce your taxable income to $75,000 which could lower your tax bill because you’re essentially earning less as far as the tax office is concerned.*
This arrangement must be set up in advance with your employer before you commence the work that you’ll be paid for and it’s advisable that the details of the agreement are outlined in writing.
What can you salary sacrifice?
According to the Australian Tax Office (ATO), there’s no restriction on the types of benefits you can sacrifice, as long as the benefits form part of your remuneration. What you can salary sacrifice may also depend on what your employer offers.
The types of benefits provided in a salary sacrifice arrangement include fringe benefits, exempt benefits and superannuation.
Fringe benefits can include:
- cars
- property (including goods, real property like land and buildings, shares or bonds)
- expense payments (loan repayments, school fees, childcare costs, home phone costs)
Your employer pays fringe benefit tax (FBT) on these benefits.
Exempt benefits include work-related items such as:
- portable electronic devices and computer software
- protective clothing
- tools of the trade
Your employer typically does not have to pay fringe benefits tax on these.
Superannuation
You can also ask your employer to pay part of your pre-tax salary into your superannuation account. This is on top of the contributions your employer is already paying you under the Superannuation Guarantee, which should be no less than 9.5% of your gross (before tax) annual salary, though this may rise in the near future.
Salary sacrificed super contributions are classified as employer super contributions rather than employee contributions. These contributions are called concessional contributions and are taxed at 15 per cent. For most people, this will be lower than their marginal tax rate.
There is a limit as to how much extra you can contribute to your super per year at the 15 per cent tax rate. The combined total of your employer and any salary sacrificed concessional contributions cannot exceed $25,000 in a single financial year. If you exceed the cap, you could be charged additional tax on any excess salary sacrifice contributions.
Most employers allow employees to salary sacrifice in super, but not all employers will allow salary sacrificing for other benefits.
Is salary sacrifice worth it?
Salary sacrifice is generally most effective for middle to high-income earners, while there is little to no tax saving for people who are already in a low tax bracket.
If you are a middle to high-income earner, then it may be worth considering salary sacrifice to reduce your taxable income and to take advantage of some of those benefits.
Before you do, make sure you talk to us so we can help ensure it is an appropriate strategy for your circumstances.
*Note: This example illustrates how salary sacrifice arrangements can work and does not constitute advice. You should not act solely on the information in this example.
Source for all information in this article: https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/Salary-sacrifice-arrangements/
Investing in recovery In his third and possibly last Budget before the next federal election,…
If you’ve recently split from your partner or are simply wondering what might happen if you do, you’ll need to keep your financial wits about you. A division of assets and debts, whether they’re held separately or together, may be on the cards.
Here are some of the things to be aware of when it comes to de facto splits and your finances.
How does the law define a de facto relationship?
A de facto relationship, according to Australian family law, is where two people of the same or opposite sex live together on a genuine domestic basis as a couple. You can’t be married to each other or related by family.
If we break up, do we have to go to court?
Not all de facto couples have to divide property of the relationship (that’s your assets and debts) when they break up. However, depending on your situation, this may be the case and can be formalised between the two of you without any court involvement.
If you can’t agree though, you can apply to a court for financial orders regarding the division of property and possibly superannuation, while spouse maintenance might also be payable in some circumstances.
This must be done within two years of you splitting from your former partner, otherwise, you’ll need special court approval to make an application.
When can orders about the division of property be made?
The family law courts can order a division of any property you and your de facto own (regardless of whether you own it together or separately) if they’re satisfied of one of the following:
- The de facto relationship lasted at least two years
- The two of you had a child
- One party made substantial financial or non-financial contributions and serious injustice would result if the order to split property wasn’t made
- The relationship is or was registered under a prescribed law of a state or territory.
What does ‘property of the relationship’ include?
Property includes all assets and debts held in joint or separate names and may include things you acquired before or even after the relationship ends. This could include things like:
- The family home
- Cars and boats
- Household and personal items, such as furniture, white goods, and jewellery
- Business and property investments
- Superannuation
- Home loan debt
- Money owing on credit cards or personal loans.
How is superannuation affected?
Under superannuation splitting laws, if you separate, it’s possible you’ll get some of your ex-partner’s super or that they’ll get some of yours.
However, because super is held in a trust and differs from other types of property, there are rules around when these assets can be accessed.
What this means is, splitting super doesn’t necessarily convert it into cash as it’s still subject to certain rules, which may mean that you mightn’t be able to access the money for a long time.
Other things to think about
- What your financial situation might look like after the separation
- What financial adjustments you may need to make
- Your will and any other instances (for instance, super or insurance) where you may have named your de facto as a beneficiary.
Seek financial advice to help you understand the long-term outcomes of different settlement options. Please reach out to the Sherlock Wealth team to discuss your unique situation here
Source: AMP
How much do you need to save to make sure you have enough to last throughout retirement? It very much depends on what your living costs will be after leaving work. Find out more about how to budget for the retirement income you’ll need for the lifestyle you’re planning for.
When you plan to retire will often be determined by whether you can afford to stop working and still have enough income to maintain your lifestyle. Figures from the Australian Bureau of Statistics[1] show the majority of men (36%) and women (22%) chose to retire at the time when they became eligible to draw on their superannuation and/or the age pension. And their average age at retirement was 63.5 years.
If you’re planning to delay retirement until your super balance reaches an amount you can comfortably live on, just how do you determine what that target should be? There are a number of factors that will affect how far your money will go, including your life expectancy, how your money is invested and other choices you make for managing your income. But one of the most important steps to planning for a secure financial future in retirement is to be realistic about your living costs.
How your living costs might change
As you stop working and have more time to yourself, your routine will change and you might save on some costs as a result. Spending on transport could fall as you no longer have to commute. If buying lunch and takeaway coffees have been a daily habit while working, you could also make significant savings by leaving these out of your retirement routine. Other living expenses, such as buying groceries and clothes and paying household bills are likely to be much the same before and after retirement.
Thinking about how you’ll spend time in retirement and where you’re planning to live will also give you clues about how your spending might go up or down. If a few trips overseas are on the cards, you’ll need to allow for these occasional costs in your overall budget. But if you’re planning to limit travel to domestic holidays only, then you won’t need to allow for these expenses in your financial plan.
Start with a ballpark estimate
How much travel you plan to be doing is just one of the many daily and one-off costs taken into account in the Retirement Standard estimates for annual expenses. Updated every quarter by the Association of Superannuation Funds of Australia (ASFA), these figures can give you a rough idea of what you can expect to be spending day-to-day in retirement.
There are two estimates available, a higher one for a comfortable lifestyle and a lower amount for a modest lifestyle. As at December 2018, the amount you’d spend as a single person aged around 65 years enjoying a comfortable lifestyle is $43,317 and for a modest lifestyle, the annual budget is $27,648. The estimate for couples is $60,977 and $39,775 for comfortable and modest lifestyles respectively.
To give you an idea of how differences between a modest and comfortable budget might impact on your retirement plans, the annual travel budget is a good place to start. A couple living modestly can expect to spend approximately $2,500, with no allowance for overseas trips. On a comfortable budget, a couple can splash out more than $5,000 each year on travel, with roughly a third going towards international travel.
The cost of lifestyle changes
Although it’s wise to build a budget based on what you expect to be doing in early retirement, your overall plan should also take into account the potential for lifestyle changes as you age. Travelling for longer periods, dining out and entertainment and taking part in sports and hobbies could taper off as you grow older. Health and aged care costs, on the other hand, could make up a larger share of your budget in the later years of retirement.
A plan to see you through retirement
Your expenses are just one side of the whole budget planning process. Taking a good look at all your retirement income options is just as important to figure out how much you’ll need and when you’ll be ready to take that step. From the age pension to the equity in your home to retirement income products such as annuities and account-based pensions, there are all sorts of ways to support yourself financially towards having the lifestyle you want.
The Sherlock Wealth Team can support you in exploring these opportunities to manage your income for your whole retirement so you can make better choices for a secure financial future. Reach out to the Sherlock Wealth team to discuss your unique situation here
Source: Money and Life
(Financial Planning Association of Australia)
Aussies may have a natural reserve when it comes to talking money. But as parents, teaching our kids to be financially aware and responsible takes more than a few quick lessons about money and the opportunities and pitfalls it can create.
Teaching opportunities will come and go as our children grow. If you’re a relaxed sort of money parent, then maybe you’re happy to freestyle and just take these chances as they come. But if you’re keen to create teaching moments by design, it can help to know what other people do and when are the best windows in your child’s development to introduce new financial concepts.
Make an early start
In 2018, 1000 Australian parents were surveyed about how they teach their kids about money for the Share the Dream report. Results show that half of parents are talking to their kids regularly about money and almost three-quarters of kids (72%) are getting pocket money, an important tool for teaching kids about saving and spending money. The age group most likely to be getting pocket money are 9-13-year-olds (80%) and if you’re aged 4-8 years you’re less likely to receive any (65%).
But according to a Cambridge University research study from 2013, parents could be missing a trick if they’re waiting until kids turn nine to start pocket money. Their findings suggest that by the age of seven, kids have already acquired the mindsets that will direct their money habits in adulthood. Not only that, but they’re also capable of grasping the fundamentals of how money works at this age. They understand that money can be exchanged for goods and that you need to earn it first.
Dr David Whitebread, the co-author of the study, encourages parents and educators to get on the front foot when it comes to helping kids learn good money habits early on. “The ‘habits of mind’ which influence the ways children approach complex problems and decisions, including financial ones, are largely determined in the first few years of life,” says Dr Whitebread. “Early experiences provided by parents, caregivers and teachers which support children in learning how to plan ahead, in being reflective in their thinking and in being able to regulate their emotions can make a huge difference in promoting beneficial financial behaviour.”
Make it holistic
As well as starting money lessons early, stats from the Share the Dream report also suggest that money talk from parents needs to be covering more ground. Many parents are definitely covering off the basics, with the majority of parents (52%) having talked with kids about spending and saving in the last six months. On the other hand, talking about cashless payments with kids is far less common. Only 19% of parents have spoken about online transactions in the same period, and the numbers discussing in-app purchases (13%) and Afterpay (5%) are smaller still.
The study also shows that there may be advantages to being more forthcoming about ‘invisible’ money transactions with our kids. Across all age groups 38% of parents are reporting that their kids have a preference for online purchases. For the teenagers in the 14-18 group, this figure rises to nearly half (47%). If kids are to be prepared for their online shopping experiences, it makes sense to be having these discussions as they begin to transact online.
Make it open and honest
Talking money with our kids can make us feel uncomfortable and this is a trend that was also revealed in the Share the Dream survey. 68% of parents sometimes feel reluctant to talk about money with their children and in the majority of cases (32%), it’s because they don’t want their kids to worry about it. And 19% of parents say they don’t feel good enough about their own financial situation to discuss it as a family.
While financial stresses can be very real to you, there may be a way for you to help your kids learn from your own ups and downs with money without causing them concern. In fact, the ‘Engager’ parent profile identified in our survey shows that having more family discussions about money can lead to their kids being more curious, confident and financially literate. Engagers are least reluctant to talk to their kids about money and it seems their honest approach is leading to more positive habits among their children, 56% of whom are likely to have a job, compared with the survey average of 44%.
Source: Money and Life.
