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Life Insurance

Discussion in 'Accounting & Tax' started by retire@45, 27th Aug, 2015.

  1. retire@45

    retire@45 Active Member

    Joined:
    30th Jul, 2015
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    Location:
    Sydney
    Hi everyone long time lurker first time poster...

    We have recently set up our SMSF and one of the items we need to organise is life insurance. In my existing super scheme (Mercer) I get life insurance, permanent disability etc. as part of the plan.

    I've spoken to a LI broker and also taken a look online and the quotes I'm getting are 3 times what I'm paying from Mercer.

    The insurance amount for death is 1.8M and I paid $1,250 for FY15 via Mercer for my cover, the quotes the broker and online are telling me are $2700 upwards for the same amount of insurance!!

    I appreciate with a managed fund they may get a discount etc. but the gap seems huge and obviously I'd prefer not to pay 2-3 times the amount if I can avoid it.

    The brokers suggestion was to leave 10k in my Mercer fund and keep insurance with them, these seems a little crazy to me as the whole point of SMSF was to be in control and have it in one place not to mention the fees etc. I'll keep paying in Mercer.

    Just wondering have others had similar issues? Am I missing something?

    Thanks.

    PS. Other key facts I'm 35, male and non smoker, wife and 2 dependants, and 1.8M is inline with current debt etc. and a recommended amount based on my personal situation.
     
  2. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Are you didn't realise that when you setup a SMSF ?? Double the premium or more is not uncommon. You could also find yourself incapable of insuring or with an insane loading if you had a medical issue on the new application.

    A strategy to avoid this is to retain the former fund and keep a minimial balance etc so that insurances are retained and its self serving. You can later do small rollovers back to mercer perhaps. The lower premiums and the small balance should see low fees anyway and may be cheaper than a new policy. Also new policy may not be as generous on the T&C. Group policies like Mercer have access to can be good there also. Group policies to industry and employer funds are some of the cheapest premiums available. Considering this issue is one of the golden rules for financial advice and a good reason why DIY fund trustees should really seek advice early. I have seen some aweful life issues after a SMSF.

    Who quoted it - AMP ? What about a specialist life insurer ?

    Your SMSF and you + wife need to carefully consider death benefits, estate planning and wills at same time.
     
  3. retire@45

    retire@45 Active Member

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    Location:
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    Of course we realised we needed life insurance when we setup SMSF what I didn't expect was it to be 3 times the price (my fault), we have wills and estate planning and a good understanding of our insurance needs just not what that would cost out of our existing super fund.

    The quotes are from various providers but via a specialised LI broker I've also validated the prices with http://www.comparethemarket.com.au/life-insurance/ and prices are similar.
     
  4. MggBris

    MggBris Member

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    19th Jul, 2015
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    Location:
    Brisbane
    As Paul mentioned above the terms and conditions are something you need to look into closely, you maybe paying a higher premium but one will pay out in certain circumstances and the other will not, costing hundreds of thousands in the event of a claim not just a thousand or two in premium's. TPD policy terms also can be quite different between fully underwritten and industry funds. Own or any occupation as an example. If you're happy with that keeping a small balance to fund your current insurances and save on premium is a strategy used quite often. Also don't forget the importance of Income protection insurance, crucial for all property investors.
     
  5. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Location:
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    Fortunately own occupation policies are now prohibited in super funds and its fairly easy to compare. However wait periods and benefit can vary considerably. Some policies offer a reducing benefit with age and a capped premium and others the cost rises with age for a stable insured benefit - Some even increase the benefit with indexation. Neither are worse or better and may suit some individuals. Take care. Many industry funds tend to offer a great package and these can even include fancy add ons such as $2K financial planning benefits etc in the event of death etc. Check TAL.

    Income insurances generally cant be held in a super fund due to the difficulty of actually obtaining the benefit.

    One very common strategy is to hold income benefits in own name (and deductable at marginal rate) and life / death benefits in super.
     
  6. retire@45

    retire@45 Active Member

    Joined:
    30th Jul, 2015
    Posts:
    34
    Location:
    Sydney
    Thanks everyone for the feedback and advice much appreciated