Insurances In this episode of the Real Wealth Podcast, Tom Gleeson and Stefan Angelini talk about insurance, the different types, costs, and structure.
More so, how to calculate the level of insurance that you may require depending on your situation.
Please remember that all information here is General Information and not Personal Advice. If you have any questions or would like Personal Advice, feel free to contact us or reach out to a licensed financial planner.
If you would like to know more about the best Insurances that may be best for you, reach us on [email protected]
#Insurances#Lifeinsurance#TPDinsurance#traumainsurances#IPinsurance#financialplanning
Tom Gleeson
G'day, everyone. Stefan and Tom here from Angel Advisory, another installment of the Real Wealth podcast. Today we're going to be looking at insurances. And the reason we've chosen this topic today is because recently, through a combination of friends and friends of friends, we've encountered three individuals who have had, I suppose, unforeseen circumstances take place where they needed insurances in place. One, a 43 year old male who was unexpectedly, diagnosed with cancer. Another 42 year old male passed away from respiratory complications. And a bloke who works in construction, 40 years old who's torn his shoulder apart and obviously not able to work anymore. The interesting thing with all three of these cases all have two children, which means they needed a plan in place for, like I said, these unexpected circumstances. So before we get into it, thanks very much, Stefan, for joining us.
Stefan Angelini
Man happy to be here. See, life insurances, income protection is the important part when you can't work anymore, when these things happen.
Tom Gleeson
Yeah, that's it. So we're going to jump into having a look at the different types, costs, and structures of the different suites of insurances. Before we do that, do you want to bang out the disclaimer, get the boring stuff out of the way?
Stefan Angelini
Love this one. G'day, everyone. Stefan Angelini here, just so you know, anything you see, anything you hear here is just general information. Please don't consider it as personal advice. If you want any personal advice, please go and consult your licensed financial advisor. Happy days. Cool.
Tom Gleeson
All right, so we'll probably have a look at those three case studies in a minute, but just as a demo, I want to look at the different suites of insurances and how there's no template that fits. You and me are both males, same age. The insurances that we would require, very different.
Stefan Angelini
Very different.
Tom Gleeson
So given your position within the company as director, but also with your wife and two kids, what's required for you to plan for the future? Very different to what they would need.
Stefan Angelini
Yeah, a lot more people were hanging on me, making money for the future.
Tom Gleeson
Yeah.
Stefan Angelini
Where do you want to go from here?
Tom Gleeson
So types, costs, and structures, I suppose we'll kick it off with life and.
Stefan Angelini
Yeah.
Tom Gleeson
Then just see how that relates to either you or me or the three case studies that we mentioned before.
Stefan Angelini
Cool. All right, so I guess 4 main types of life insurance are life insurance, disability cover, trauma cover, and income protection. So life insurance. So what happens if you die? Right. What happens if you die? Who is relying on you? Who's relying on your income? And if you look at, for instance, Stefan Angelini, I've got two kids. I've got a wife who is full time mother to those kids. And what that means is that her income earning capacity has dropped off because and if I passed away, then she would be the full time mother.
Tom Gleeson
Yeah.
Stefan Angelini
I don't have a level of assets yet where I could sell everything and they can survive off it. So I need insurances to make sure they can lead the life I want to live.
Tom Gleeson
Yeah.
Stefan Angelini
So I've got considered in my life insurances, for example, I want my family to be able to live off a certain amount each year, call it 100 grand after taxes. I've got included in that. I want my kids to have the ability to go to a private school, so I've got that funding fixed into there as well. And as well as I want the house paid off, so all the debt absolutely paid off as well. So they're the main considerations that people come to us and think of. Now, when I've turned to talk about adding, when you add back, what don't you need? So I've added back. So they would also get my Superannuation payout, or they might also get part of a business sale if that comes through. So you can do add backs when you've got life insurance, but basically, when you think about it, is, who needs money and what do they need for the rest of their life when I'm not here?
Tom Gleeson
Yeah. An important part of that you just touch on, I think, would be when you talk about paying off the property if you're gone, and then that responsibility which you used to handle is suddenly thrown to Whitney. I mean, that's chaos if she's left to do it on her own. When you set up the life insurances, it's designed in a way that this is taken care of. So we're not plucking numbers out of the air, we're calculating an amount that's required to pay off that debt that's then factored in, amongst other things.
Stefan Angelini
Yeah, because if it's not paid off, they've got to sell it, then they're left with not much. So that's how you work out. But for you. Can I tell people your personal situation?
Tom Gleeson
Go nuts, mate. I'm an open book.
Stefan Angelini
Single, ready to mingle.
Tom Gleeson
Yeah.
Stefan Angelini
Who do you need to leave money to?
Tom Gleeson
Well, no one. I honestly would put a life through life insurance. Maybe as we get further down the line, some of them might become more relevant, but in terms of who I'm financially responsible for, it's me. So if I'm not here, there's no debt to be cleared. There's no reason to take out that policy when no one's relying on me. I'm not bringing kids and saving for school. I'm glad I'm not saving school.
Stefan Angelini
Cool. Cool. What's the other one?
Tom Gleeson
I think that would lead nicely into TPD because of the ability to link and the way that they sort of relate to each other.
Stefan Angelini
Sorry, TPD.
Tom Gleeson
Total permanent disability.
Stefan Angelini
Yeah. So you can link TPD and life insurance, because normally, as a TPD, if you're getting paid out TPD, you're in a pretty bad situation anyway. So the worst way I explain it is you get hit by the bus, but bus doesn't do a good enough job, you're still here, you're still annoying people.
Tom Gleeson
That's the best way as well.
Stefan Angelini
Yeah, it's all about life insurance. It's just it's absolutely brought here.
Tom Gleeson
Yeah. I don't know how else to do it. Yeah.
Stefan Angelini
So you're here, didn't do good enough jobs. What do you need? So a lot of times when you do disability cover, it's very similar to life cover and you link them to each other because you want debt paid out.
Tom Gleeson
Yeap.
Stefan Angelini
But if your debt is paid out and then you die, well, you don't need it paid out twice because it's already gone. So there's certain overlappings, which is why you might want to link the cover. The one thing that's different with total and permanent disablement is a lot of times you might get paid an income protection portion. So if you've got income protection set up as well and you're still here, your income protection is good enough. You'll get paid from your income protection. So that will meet a lot of your ongoing cost of living with your TPD payments. And that's why your TPD can be a bit lower than your life cover because you've got that other cover there. But the most important thing to think about is when you talk about the disability cover is the category and the ownership.
Tom Gleeson
Yeah.
Stefan Angelini
So there's two main parts. There's an any occupation disability cover and an own occupation. Any occupation means if I can get retrained to do any job, then I won't get that payment because you're not in that bad of a situation under that category. Now, that's what a lot of industry funds have in their wording and definitions. So it's really important to read product disclosure statements, if you like reading 72 page documents that are completely boring.
Tom Gleeson
Yeah.
Stefan Angelini
Under the own occupation cover, if you can't do your own job, you'll get paid out the disability cover.
Tom Gleeson
Yeah.
Stefan Angelini
So it becomes quite important and very very relevant for individuals, especially if you've got a specialist kind of job. Some people that we see have a very broad job and they say, it's very rare that I'm going to not be able to do my job. And therefore they might opt to have any occupation cover. But otherwise it's a lot of people that lean towards having that own occupation definition because there's a high likelihood you're going to get paid out. So why not pay a few extra bucks to give yourself the best chance of actually getting the cover when you need it?
Tom Gleeson
So that's for own occupation, obviously the more desirable one, which it's offset by slightly driving the premiums up.
Stefan Angelini
That's it.
Tom Gleeson
That's a better deal.
Stefan Angelini
Yeah. With any you want a better cover, you got to pay a little bit more.
Tom Gleeson
Yeah, for sure. And again, to come full circle to us, TPD, I would say is necessary for you I need not one I need.
Stefan Angelini
Yeah, exactly right. So mine's got a bit of extra complexity to it, so I want to factor in things like getting really good health care in the event it comes out. So I've got a really big amount allocated for medical costs. Also home modifications as well. So, say I'm in a wheelchair, for example. At least I can fix up my house. I have the money to fix up my house.
Tom Gleeson
Putting ramps in, et cetera.
Stefan Angelini
Yeah. I'm a business owner. Very tough for me to get income protection when you're starting a business. The first few years.
Tom Gleeson
Yes.
Stefan Angelini
So I've had to have a little bit of an allocation there as well, because that income protection isn't quite there. So TPD is a lot higher than it could be. Should be from someone like me. And for you, it's still important.
Tom Gleeson
Which one
Stefan Angelini
TPD?
Tom Gleeson
Yeah.
Stefan Angelini
You've got cost of living you need to meet.
Tom Gleeson
Yeah.
Stefan Angelini
I mean, unless you can rely on family and things like that.
Tom Gleeson
I can. That is part of it. And also partly banking on the was it the train or the bus to just do the job, just get it over.
Stefan Angelini
That's where everyone's different. Everyone's different.
Tom Gleeson
Yeah. Put a maybe next to TPD for me, which brings on to the next one, which is trauma, which is quite niche and differs from TPD. What would you see? Is that one that you require?
Stefan Angelini
Yeah. Trauma is like a one off, so it can also be called Critical Illness. So you have a traumatic incident, there's a certain group of what you can cover for, so let's call it cancers, heart attacks, strokes, certain other things that fall into the categories. Pretty bad things happen, though and what this does is it essentially provides you a lump sum of cover to get through whatever time in that life that it is, right? Because if you're like me and you dead, it up to the eyeballs and a lot of your cash keeps going out to pay for things. You don't have a heap of savings built up to the side there and therefore you need something to pay you you to get through those hard times.
Tom Gleeson
Yeah.
Stefan Angelini
So what I meant to look at is I've looked at for the trauma cover in the event something happened to me. I want to be able to pay for the best care, so I don't want to have to rely on the public system. So I've got an allocation for medicals, I've got an allocation to give me some time to take off work to replace what I get from the business or from a wage, and not have to rely on income protection. I have to lay on the business paying me because I'm not actually involved, because I might want time to recover because you might not get income protection. If the doctor says you can go back to work, you're not going to keep getting your income protection. But then I've also got in my trauma cover, I'm a business owner and this is where it starts to get a little bit more complex. I've got people relying on me and if I'm the main revenue driver in my business.
Tom Gleeson
Yeah.
Stefan Angelini
And I'm not there driving revenue and seeing clients and clients decide to leave, then I need to make sure that everyone in the business is safe and taken care of. So I've got an extra allocation to be paid to the business in the event something happens.
Tom Gleeson
So in that regard for you specifically, the Life and TPD were quite focused on or tied to home and family.
Stefan Angelini
Yeah.
Tom Gleeson
When it comes to trauma, you're looking more how's the business going to continue when you're not there.
Stefan Angelini
Yeah, because I'm coming back. There's not something that's going to keep me down. You're going to come back from these things, make sure everything's just safe in the wall, you're not there. So it's super important.
Tom Gleeson
And last one. So, income protection, I think both of us, yes. Although you're in a situation where it's not where it would be, so where you'd want it to be. So in the future, what your income protection looks like will change?
Stefan Angelini
What's all the different definitions of income protection?
Tom Gleeson
Yep.
Stefan Angelini
Things have changed so much in this space over the last twelve months because income protection became super expensive for everyone and anyone that's got it. You would have seen your income protection premiums jack up a whole lot. Now there's a lot of definitions, but the main parts are what is your waiting period, so how long will you wait before you start getting paid so let's say you want to wait 30 days. If you wait 30 days and then you put your hand up and go, excuse me, can I start getting paid now? That means you got to rely on your own cash reserve or your sick leave to get you through for those 30 days before you start getting paid from income protection. Benefit period is how long do I get paid for? Do I want to get paid until I'm 65, or do I just want it there for the next two or five years? Obviously, if you're going to get paid if you're 40 years old and you want to get paid until you're 65, that's 25 years they need to cover for. So the costs are going to be more expensive, right?
Tom Gleeson
Yeah.
Stefan Angelini
But the way these new definitions have come into play is they've said, we'll give you cover until you're 65, but we'll only give you the cover under your own occupation for the first two years. But then you've got to prove that you can't work after those two years under our definitions or can't go back to work and then we'll keep paying you. So it becomes quite tricky to get it. And that's why it's having the right conversations or finding the right provider for each individual.
Tom Gleeson
Yeah.
Stefan Angelini
It's super important. The other main thing with income protection is how much can you get? So nowadays so it used to be you could get up to 90% of your income and then it dropped to 80. That's a long time ago. Then it dropped to 80. Now you can only get up to 70% of your income. So that's been a change that was implemented as a result of the Royal Commission into Banking and Finance in our industry. And it basically said that you need an enticement to go back to work. So if you're getting 80% of your wage, why would you bother?
Tom Gleeson
Yeah.
Stefan Angelini
So it used to be also you could get an agreed cover or indemnity cover. Agreed cover was, no matter what happens to my wage, if my wage is at 150 grand a year and then it drops to 100, then I'll still get my insured value if it's above 100 grand. Indemnity now means that you'll only get 70 or 80%, depending on your product of what your wage is within the last two years of you claiming. So definitions have changed, how you get the cover has changed, but it's really, really intrinsic. And whether or not you get like a plus policy that gives you benefits and gives you basically it'll pay for your physio and pay for you to get better under, like, a plus or a premium policy. Whereas some are just we're just going to replace your income.
Tom Gleeson
Yeah, that's it.
Stefan Angelini
We don't care. Just replace your income. What's right for the right person? It all depends on the conversation and what everyone wants.
Tom Gleeson
And just throwing back a little bit to the agreed versus indemnity. There's no more agreed products on offer, is there?
Stefan Angelini
No, you can't get them. And if you got them, it's super expensive.
Tom Gleeson
Yeah.
Stefan Angelini
Okay.
Tom Gleeson
And I suppose you just touched on that. Finding the right combination for each individual is going to be when we've had situations where the ideal situation is, why get paid out till I'm 65? Of course. Why wouldn't I like that one? We run that, the premiums come out astronomical. It's like, well, okay, that's actually not as beneficial as I thought. Two years, five years, and it's just a matter of massaging the numbers, waiting periods, benefit periods for what's going to suit each person. That's it.
Stefan Angelini
Yeah.
Tom Gleeson
Cool. So that wraps up Life, TPD, Trauma and IP, I suppose, within those four. We now want to look at how they relate to Superannuation, where they can be paid where they can and can't be paid through Super, essentially.
Stefan Angelini
Cool. Yeah. So you can pay for a lot of insurances through your Super, as a lot of people would know. So you have an industry fund and you get your payout from your industry fund quite quickly, or you can get a payout from your industry fund, or you can have it within a separate insurance company, but it's still linked to your Super, and that's beneficial. If you ever want to change your Super fund, you don't have to cancel your insurances, so we do it for a lot of clients. Now, life insurance you can have through Super, and it's quite good because you get a tax deduction through Super. When you pay for that life insurance cover TPD, you can have basically about any occupation portion through Super.
Tom Gleeson
Right.
Stefan Angelini
The one risk is that you will get taxed when it's paid out, right? So sometimes you need gross up for tax if you want to get the perfect amount. The own occupation portion most of the time cannot be owned through the Super environment. Some providers allow it, but most do not. Income protection can be paid for through Super, but this is the risk. So it's great for cash flow to have your income protection paid for through Super. The risk is that with a lot of providers, if you're not working at the time of your claim, then you cannot claim your income protection if it's paid for through Super. So let's say you took a year off work yeah. Right. And you're paying for income protection out of your own pocket. Then you'd get that payment, you'd get that income protection even though you're not working. Whereas if you're paying for it through Super, then you won't get the income protection payment.
Tom Gleeson
Brutal.
Stefan Angelini
The other thing is getting access to the actual income protection claim. When it's through Super, you need to meet certain definitions to get access to the payment, which becomes quite tough. Do you want to go through that tough scenario in the event you need to get access to that income protection payment. Through Super, you get a tax deduction through your Super, which is good. But even if you hold it personally, you get a tax deduction in your own name as well. So sort of touching off on taxes and structure. The last one, so TPD, in your own occupation, if you own it personally, you don't get a tax deduction. With trauma cover that I spoke about, you can't own that through Super. You can only own that in your personal name.
Tom Gleeson
Right.
Stefan Angelini
The reason is because in the event you have a traumatic incident, you can't meet what's called the Condition of Release. To get access to your Super money, you need to meet a condition of release being a certain age, or you need it being financial hardship or something else that falls under that banner.
Stefan Angelini
But just having a heart attack or a stroke or getting cancer is not something that triggers that condition, and therefore it needs to be owned personally so that you actually get the money. There's no tax deductions for these either for trauma.
Tom Gleeson
For trauma.
Stefan Angelini
Now, the reason you might get tax deductions and you might not is because if the money comes through in your personal name under income protection, you will get taxed on that money. Therefore, because you get taxed when it comes back, you get a tax deduction for it. With trauma, you don't get tax. So if you've got 200 grand of trauma cover, it'll come in and you get 200 grand and land in your lap. An interesting thing on trauma cover as well is you don't need to prove the use of the funds at all. We were dealing with a client a while ago who got a $400,000 trauma cover payout and was meant to do it said to use it to get brain surgery, but she knew a surgeon who owed her a favor, and the surgeon did it for free. So she kept the money, which is possible. So you've got to meet it a release condition in your claim and you can get access to the payment.
Tom Gleeson
That's a bad situation turning into a good one pretty quickly.
Stefan Angelini
Yeah, and they're healthy, which is great.
Tom Gleeson
So the surgeon was solid.
Stefan Angelini
Yeah.
Tom Gleeson
Thought it was a gamble.
Stefan Angelini
Yeah.
Tom Gleeson
Speaking of the case study, so one that we encountered recently with, like I mentioned before, so 40 years old, two kids builder and tears his shoulder apart, then going through the process of getting the income protection claim was tough because you have to come back with so many questions, clarifications, all these different things. Given that, I mean, we've seen it before, but he's seen it for the first time and is sort of understandably saying, I've ripped my body apart. I can't work. It's so simple. Why am I getting more phone calls? Why am I getting more questions? But there's quite a few hoops to jump through before that income protection payment will come through.
Stefan Angelini
Yeah, because you could imagine all the people that want to get the payment but aren't actually that unwell. That claims process is super important and tough.
Tom Gleeson
Yeah.
Stefan Angelini
That's why it's important. We as advisors, we take care of that claims process for our clients who are under us.
Tom Gleeson
Yep.
Stefan Angelini
It takes the stress off their shoulders and that means we go in with our boxing gloves on and gets a fight our way through to get the money back.
Tom Gleeson
Yeah. The most polite fighting ever. Two things I suppose to take away from that is that is our role to take that on, to be on the phone constantly trying to push these things through. Also the concept of the individual assessment, which is there's no templated cover, same age, very different suites of insurances. That goes for not just the two of us, but everybody else. Getting that assessment right to figure out what you need and what's going to best suit you.
Stefan Angelini
For anyone out there, if you are someone that's now assessing insurances, or you have them and you think they might cost too much, or you're not sure about the structure, what they actually mean, reach out to us at [email protected]. We've got a fairly detailed and quite simple process to figure out what you need, who's the best provider, and how to get you from end to end. And yeah, everyone comes out super happy with that. Well, not happy because no one wants insurances.
Tom Gleeson
No.
Stefan Angelini
The necessary evil.
Tom Gleeson
That's it.
Stefan Angelini
Okay, cool. Well, mate, thanks for that.
Tom Gleeson
Thank you very much.
Stefan Angelini
All right. Well, thank you for listening.
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