Estate planning is an important process with the aim of preserving and enhancing the value of your estate while avoiding adverse consequences for your intended beneficiaries should a catastrophe occur. It involves two fundamental factors: reviewing your assets, and protecting them.
This article will explore strategies to protect your assets.
Contingency planning is an integral element of any financial plan. After you have reviewed your existing assets, if you calculate there may be insufficient funds in the event of a catastrophe, then you should consider sourcing insurance protection.
Types of insurances which should be considered include:
- Total and Permanent Disablement (TPD) Insurance
- Term Life
- Income Protection
There are a few main points to note for these different types of insurances.
total and permanent disablement (TPD)
This cover provides a lump sum payment in the event the insured suffers an injury or sickness resulting in total and permanent disablement.
This cover provides a lump sum payment in the event of the insured’s death. The need for term life insurance generally decreases as a person reaches retirement age (they have usually cleared debt and commitments for childcare and education costs).
term life (death) and total and permanent disablement (TPD)
Proceeds of these policies are generally used to cover outstanding debt, including home mortgages and to provide funds to meet education, childcare and replacement of income.
Death and TPD cover may be paid through your superannuation provider. This allows you to use pre-taxed income to cover premiums instead of after-tax income.
It’s a good idea to determine whether or not your cover is provided within your super policies.
There could be issues relating to the access of total and permanent disablement benefits as well as benefits tax payable for policies held under superannuation.
Trauma insurance provides a lump sum payment if you suffer a major health problem such as cancer, heart attack or stroke.
The purpose of this type of insurance is to assist you financially with:
- Specialist or international medical attention
- The cost of any modifications to your home
- To avoid financial stress in recuperation (e.g. debts, house cleaning, etc)
- The benefit is paid as a result of the actual trauma and therefore is available even if you are able to return to work.
Income protection policies provide income replacement after a waiting period for a specified period of time (nominated at the time the policy is implemented).
Income protection premiums are tax deductible.
- Benefit Period
Can be for a period of 1 year or up to age 65. Depending upon your profession, lifetime benefits may be available.
- Waiting Period
Can be for one week up to two years. The waiting period chosen will depend on individual sick leave entitlements or liquid assets. The shorter the waiting period the higher the premium.
- Benefit Payable
This is usually limited to 75% of income and is reduced by any other ‘earned’ income i.e. worker’s compensation, employment income.
- Disablement Definition
The definition of total disablement can vary. The most commonly used definition is: “Totally disabled so that the insured person is unable to perform at least one income-producing duty of their regular occupation”.
Remember, estate planning not only helps to preserve and enhance the value of your estate, but also can give you peace of mind that your loved ones will be better able to cope in less than favourable times.