Pays a lump sum amount when you die (eg $1 million).
Also called ‘Term insurance’.
Used by family to pay-off debts and cover future living expenses.
Cheapest way to get it is via superannuation account.
Calculate based on needs: Total debt - investments - superannuation + Present Value (PV) of replacement income
Example: John and Sarah are a couple aged 30 with 2 dependent children.
They have a home loan of $500,000
They each have $100,000 in superannuation accounts.
They have $50,000 of other investments.
If either die, they would need $50,000 per year for 30 years (until age of 60)
The real rate of return on investments is 5% per annum.
Cover = 500,000 - 50,000 - 100,000 + 50,000 * ((1 - (1.05)^-30)/0.05)
= 1,118,623Replaces up to 90% (first six months) then 70% (subsequent periods) of your salary if you have an accident or illness that prevents you from working.
Also called ‘Salary continuance’ and ‘Income Insurance’.
Benefit waiting period between 14 and 90 days.
- You choose the waiting period when you apply for insurance.
- Payments don't start until X days after the accident.
- The longer the waiting period, the cheaper the premiums.Premium payments can be claimed as tax deduction.
- But if you get sick and receive benefits, they are taxed.A type of basic ‘income protection’ paid by your employer
All employees of companies are covered
The employer pays the premiums for you (required by law)
Safety-net for people without income protection or savings
Covers you for accidents at work
Pays salary (or proportion) for 6 months …and will pay medical bills (up to a limit)
Best not rely on this and apply for separate income protection!
Marriage invalidates prior wills.
Legal document with clear instructions about what will happen after you die.
Who will receive your stuff (beneficiaries)
- Real assets (cars, music, computers etc)
- Financial assets (bank accounts and investments)
- Until distributed, they are owned by 'The Estate of Krishna Khong'Who will be the guardian of your children
Who will oversee the whole process (executor)
With adequate ‘backup’ clauses in case beneficiaries or executors die before you (predecease you)
A will makes transferring title of your financial assets easier for your family.
This is important since they will also be grieving.
A will reduces the likelihood of family arguments.
A good will reduces admin and legal costs.
If you are married and don’t have one - then the laws of intestacy may end up screwing your family!
Dying ‘intestate’ means you died without a valid will.
There is no will so the probate division of the Supreme Court appoints an administrator.
The administrator applies state laws for intestacy.
- The law varies from state to state.For two people dying at the same time, the older person is deemed to have died first.
Any assets owned jointly with someone else.
Title is automatically transferred to the surviving person.
Most people purchase houses jointly with their spouse.
…so full ownership will automatically transfer to the spouse.
Assets that you do not directly own
Super is owned by a trust on your behalf and so you cannot give instructions about it on your will.
Instead, nominate ‘beneficiaries’ on your super application form.
Any assets held in a family trust.
Death benefits from life insurance policies.
Normally a bad idea to leave specific assets to people because you may not have them when you die or it may be unfair.
Better to say 50% of all assets to this person, 25% to another, 25% to another and let them decide which assets they want.
If the beneficiaries can’t decide then there is an easy solution - Ebay everything and give people $$$
Make sure there is a residual beneficiary in case everyone else is dead (eg. A charity)
If single, usually leave 100% to either siblings or parents.
If married, usually leave 100% to your spouse.
However, need to also leave instructions for if your spouse or members of your family are dead.
For example:
I leave 100% to my spouse.
If my spouse predeceases me then 100% to brother,
If my brother predeceases me then 100% to parents,
If my parents predecease me then 100% to Salvation Army charity.
Executor oversees the whole process of distributing assets in conjunction with a solicitor.
Qualities of an executor:
If no one in your family qualifies:
Always appoint a backup executor in case they refuse!
If married or aged, consider arranging Enduring Power of Attorney with the solicitor when drafting your will.
‘Power of Attorney’ allows them to buy and sell your investments while you are still ‘mentally capable’.
‘Enduring Power of Attorney’ allows them to buy and sell investments even if you are mentally incapable.
An excess (also known as a deductible) is an amount the policy holder must pay if they proceed with making an insurance claim on their insurance policy. It’s the first amount payable by the policy holder in the event of a loss and is referred to as the uninsured portion of the loss.