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New Year’s Resolutions

New year’s resolutions usually have more to do with our body shape, weight loss, our relationship or our jobs.

This message is not directed to any of those aspects but rather to our family’s security and wellbeing.

Unexpected events, such as death, illness or accident do happen, they devastate families and change their lives – You can’t control the event but you may be able to control its financial impact.

Make protecting your family a priority in 2017 by following these four tips:

  1. Protect your standard of living, and that of your family by ensuring your mortgage and other debts are covered by
    appropriate insurance.
  2. Ensure the main income earner has appropriate Life Insurance to replace income loss upon death, disablement or illness – Remember that insurance within your superannuation may be an option.
  3. Ensure your Superannuation beneficiary nominations are binding and appropriate to your circumstances.
  4. Have a valid and up to date will in place together with an enduring Power of Attorney.

Finsec Partners Naracoorte, Barrie Moyle & Associates

The Trowbridge Report

Life Insurance is a large and very important part of Australia’s financial sector.

According to assistant Treasurer Josh Frydenberg “there are 28 life insurance companies writing more than $44 billion worth of business, and more than 13,500 life insurance advisers employed in Australia.” The policies they provide – be it through a superannuation fund, direct from an insurer or via a financial adviser – provide essential financial security in the event of death, serious illness or injury. Without it, even the best laid plans often go awry.

However, it has become clear through a series of reviews that reform in the sector is needed.

The latest of these reviews, an independent report by John Trowbridge and one commissioned by the industry itself, focuses yet again on the misalignment of interests that can occur between insurers, the adviser and the client.

Like the Murray Report before it, Trowbridge’s main concern is upfront commission and the issue of ‘churning’. His report outlines six policy recommendations for improvement.

  1. Upfront commissions be replaced by level commissions combined with an
    initial advice payment (to cover policy set-up) that can not be paid more than
    once every five years (‘the five year rule’).
  2. A transition period of three years in the implementation of point 1.
  3. Licensees be prohibited from receiving non-commission benefits from insurers that might have an impact on the products they recommend to their clients.
  4. Licensees to extend the number of providers on their Approved product list to include at least half of the providers servicing the market.
  5. Improve the standards of client engagement and education
  6. The industry to develop a ‘Life Insurance Code of Practice’ to better inform and govern adviser customer interactions.

Click here to read the full report 

FinSec Partners have long championed the raising of professionalism in financial planning, particularly the banning of conflicted remuneration and the requirement for advisers to act in the best interests of their clients. In this context, we welcome the Trowbridge Report .

Whilst the report (at this stage it is only a report, not law) addresses key issues within the risk industry and to this extent should be applauded, the current recommendations do require considerable ‘tuning’ to ensure the desired outcomes are in-fact achieved. We hope the 5 year rule allows the flexibility to deliver ‘best interest’ advice in-line with a persons changing needs and that any savings to manufacturers as a consequence of reform, is passed directly on to consumers, not pocketed as additional company profits.

Most in the industry would agree ‘churn’ should be prosecuted but not when the recommendations are in danger of helping large integrated insurers on the back of the sins of so few.

A step in the right direction none-the-less.

’10 x Income’ is Not Enough

Rice Warner
December 3, 2013

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The widely-used life insurance equation of ‘10 x annual earnings’ is not enough to secure a family’s long-term lifestyle, the latest underinsurance research from Rice Warner has revealed.

The consulting firm has released its annual ‘Underinsurance in Australia’ report, which found that in order for a family’s standard of living to be maintained in full, life insurance cover of an amount equal to 15 years’ income is required.

Similarly, TPD cover equivalent to 15 years’ annual earnings is required to ensure sufficient long-term finance for a family if one income-earner became permanently unable to work.

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According to Rice Warner, cover of around 10 times the annual earnings of an average Australian couple aged 40, with children, would only extinguish debt and cover existing expenses, until the youngest child reaches the age of 21. It would not replace any savings that could be accumulated if the missing family member was still earning an income, or match their predicted superannuation benefits.

In addition, the researcher warned families that they should not rely on government benefits, such as the Family Tax Benefit, or childcare benefits, as these provide only a modest contribution towards overall living needs.

Co-author of the report, Thierry Bareau, also warned that the rising cost of insurance could lead consumers to question the need for cover.

Rice Warner’s study showed that the average cost of death and TPD insurance in employer-based superannuation funds increased by 10% between June 2012 and June 2013, with some superannuation funds raising prices significantly more.

“The underinsurance problem could grow over the next few years if the insurance affordability issues are not resolved,” Mr Bareau said.

“As the cost of insurance inside super increases, members may start to feel that premiums are eroding their retirement savings, and they may decide to opt-out of the cover. Similarly, super fund trustees may decide to reduce the amount of cover they offer to their members to reduce costs.”

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He also highlighted the potential anti-selection issues which may be occurring within group insurance through superannuation, as members who may not be eligible for retail cover are taking advantage of introductory offers which enable them to top-up their cover without underwriting in the first 6 months of joining a fund.

Mr Bareau said one of the ways the industry could work to avoid this potential underinsurance crisis was to review the insurance benefits currently offered within superannuation, particularly in relation to the default level of life cover provided.

“The definitions around TPD may also need to be reviewed. TPD in super was originally intended to provide cover for people permanently unable to work in any role. But now, because of competitive market forces, these definitions have become looser, and people can receive benefits even if they can work in a different role than the one they originally performed. I think the industry definitely needs to take a look at this,” he said.