Fundamentals of insurance – what you need to know

At a glance, what have been the most common themes occurring in the risk insurance advice space?

There has been a hum of activity on insurance in the media and much of this has been focused on fees or commissions and the raising of education standards, which pose as high importance.

A significant element missing from the current debate is the crucial role of insurance to protect many families, where the need for insurance in Australia still exists. Most Australians fail to address the issue of insurance to cover unexpected events and adopt effective strategies to minimise the impacts. While most people understand the purpose of insurances, such as car and home, other types of potentially more valuable insurances which can cover loss of income or health trauma events are often not discussed or implemented. Consequently, while there are some changes occurring in the risk insurance advice space, the key message is to make sure you have adequate insurances in place to cover your specific needs and objectives.

At present, the Government is still consulting on the specific details of the proposed changes impacting risk insurance and advice – we will aim to keep you informed on how this may impact you.

Fitzpatricks has always operated on the principle to align the advice and products to suit the specific needs of the client and to disclose the costs of this advice clearly to the client which will continue.

What should people look out for when reviewing insurances?

Insurances should be reviewed regularly, particularly if there is a change in personal circumstances. Some, but not all, trigger events for an insurance review including increasing or decreasing debt, starting or ceasing a business, change in a family situation (upcoming birth, child leaving home, significant health circumstance), change in employment or retirement, etc. In addition to changes in personal circumstances, views of people can also change – for example, the desire to leave a charitable legacy or provide funding to heirs. The cost of healthcare and associated rehabilitation expenses continually rise, plus there are frequent changes in products. These factors mean a regular review of insurances is a worthwhile exercise.

Are there any recent changes to insurance arranged through a Superannuation Fund?

Another recent change affecting insurance applies to insurance policies arranged via super.  Specifically changes have occurred to the type of Total and Permanent Disability options you can hold via a superannuation fund, including a SMSF.  From 1 July 2014, superannuation fund trustees will only be able to offer or take out insurance that aligns with the death, terminal illness, permanent incapacity and temporary incapacity conditions of release under the Superannuation Industry (Supervision) Regulations.  Existing insurance policies owned by superannuation trustees are not affected.

Note that all superannuation fund trustees, including SMSFs, are required to consider insurance cover for their members as part of the fund’s investment strategy and their regular review of the investment strategy. Trustees need to consider the type and level of insurance for each member and whether insurance is appropriately held inside or outside the fund. The requirement to consider insurance may be documented in either the investment strategy or trustee meeting minutes.  If you have any questions about these changes, please contact us.

Fitzpatricks has developed advice processes to work out the type and amount of risk insurance to cover an individual’s need. Have a chat with your Adviser regarding your current risk insurance arrangements and requirements.

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