Choosing an Income Protection Insurance Policy - Part 2

What kind of cover do you want?

Once you've decided you want to take out cover, you need to consider how comprehensive you want the cover to be. The more comprehensive the cover, the more expensive it will be.

1. Do you want to receive a benefit if your disability is: - partial (eg you can return to work part time) or total

- permanent or temporary

2. Do you want to be covered if you are "disabled" in a broad or narrow sense? Different policies will consider that you are disabled if you are unable to do:
- your usual occupation
- any occupation to which you are suited by education and training or
- any occupation at all.

3. Do you want to receive a benefit for a disability that is the result of:
- an accidental injury
- sickness or illness or
- both?

4. If the policy covers sickness or illness, does it cover "pre-existing" illnesses?

A pre-existing illness is one that you:
- may have had before you took out the policy (even if you have recovered) or
- one that you had symptoms or treatment for (even if it was not severe enough to prevent you working).

This is particularly important if you are taking out a new policy each year (instead of paying an annual premium to continue an existing policy). The insurer may have the right to refuse a claim if you contracted an illness under one policy, but were not disabled until after you had taken out the new policy. The illness becomes "pre-existing" and is therefore not covered under the new policy.

5. How long do you want to receive benefits?

For example, benefits for temporary disability will usually be limited to a period of one or two years only.

6. Do you want to receive an insurance payment even if you are receiving other money?

Some policies will not make payments (or will reduce the amount they pay) if you are getting money from another source as a result of the accident or illness. For example, if you are getting workers' compensation or disability payments through Centrelink, the insurer could pay you less or not pay you anything.

7. Does your policy cover you if you aren't working when the disability occurs? For example, you may be between jobs or a seasonal worker moving from job to job.

See Part 1

See Part 3

© Australian Securities & Investments Commission. Reproduced with permission.

Choosing an Income Protection Insurance Policy - Part 1

Most people only read their policy from cover to cover when they need to make a claim. Unfortunately, by this time it's often too late.

In 60% of cases involving disputes over unpaid claims during 1999, consumers did not have the insurance they thought they did. Make sure you know up front what to expect from your policy. Courtesy of ASIC'S comsumer site FIDO, here's what to look out for so you get the cover you need:

Is Insurance Part of Your Superannuation Package?

Before deciding whether to insure yourself against loss of income, check if you already have disability insurance through any superannuation fund you contribute to. If you do, check what sort of insurance it is and when it will pay.

Superannuation funds commonly offer insurance that pays benefits if you become permanently disabled and cannot return to work (to replace at least some of the income you would have earned if you were still employed). It is usually (though not always) cheaper than a policy you take out yourself. Your super fund's product disclosure statement (PDS) tells you about your insurance coverage. Ask you super fund for a copy of your PDS.

See Part 2

See Part 3

© Australian Securities & Investments Commission. Reproduced with permission.

Know Your Tax Offsets: Baby Bonus

I am still talking to women who were/are eligible for the Baby Bonus and had no idea! Don't miss out... know your tax entitlements or talk to someone who does.

What is it?

The baby bonus is a payment from the Tax Office you may be entitled to if you had a baby or gained legal responsibility for a child aged under five, between 1 July 2001 and 30 June 2004.

The baby bonus is a refundable tax offset – even if you do not pay tax, do not have any income or do not have to lodge a tax return you can still claim it. The baby bonus is paid whether or not you currently get any other family benefits.

Who qualifies?

If you had a baby or you gained legal responsibility of a child aged under five (for example, through adoption), after 30 June 2001 and before 1 July 2004 – whether or not you already have other children – you could receive the baby bonus. Usually, it is paid to the mother of the child. If you had a baby or you gained legal responsibility of a child aged under five (for example, through adoption), after 30 June 2004, you are not eligible for the baby bonus. You may be eligible for the new Maternity Payment which is administered by Centrelink.

How much is it?

How much baby bonus you get depends on your own taxable income each year. If your taxable income is $25,000 or less you will be entitled to an annual amount of $500. The ATO have an online calculator to help you work out your baby bonus.

Do I need to Lodge a Tax Return?

Typically you will need to lodge a tax return if:

• you have paid income tax during the financial year
• your taxable income is above the tax-free threshold of $6,000 and you did not receive Centrelink payment,
• you received a Centrelink payment, had other income, and your taxable income was above the threshold amount listed in TaxPack.

Other reasons you need to lodge a tax return include such things as:

• you are the liable prent under a child support assesment,
• You have a reportable fringe benefits amount,
• you are entitled to the private health insurance offset,
• you carried on a business,
• you made aloss or claim claim a loss you made in a previous year

... along with a host of other reasons.

If you are unsure, it is worth getting in touch with your accountant or tax agent to clarify your obligation. Did you know the ATO now have an online tax tool to help you determine if you need to lodge?

If you are not required to lodge a return this year, you should submit a non-lodgement advice to the ATO (this is included in TaxPack 2007). If you are registered under a tax agent, they will inform the Tax Office for you.

Tax Office warns of illegal early access to superannuation

In like vein to yesterday's post on early withdrawal of super, the ATO has recently released a media alert warning people to beware of shonky schemes:

The Tax Office has warned people from non-English speaking backgrounds to beware of schemes offering access to superannuation benefits before retirement.

Deputy Tax Commissioner Raelene Vivian said schemes offering early access to superannuation for a fee are illegal and anyone involved faces the loss of their super benefits, legal penalties and a hefty tax bill.

“We have detected promoters offering early access schemes to people from non-English speaking backgrounds in western Sydney.

“Anyone who is offered a scheme which, for a fee, arranges access to their superannuation before they retire, should contact the Tax Office on 13 10 20 without delay.”

Ms Vivian said promoters are misusing self managed superannuation funds they have established or that they establish for their clients, to access superannuation benefits.

She said they are charging fees of up to 20% or more of the fund’s assets for their services.

“They then claim the client can withdraw the money to pay off debts or to fund the purchase of a home, to buy a car, a boat, pay for a holiday or other purposes.

“Involvement in early access to superannuation schemes as either a client or a promoter is illegal and attracts significant legal and financial penalties.”

Ms Vivian said early access to superannuation is only granted in cases of severe financial hardship or on compassionate grounds with approval from the Australian Prudential Regulation Authority.

“In these situations people do not need the services of a promoter and no fee is required.”

Q & A: Early Release of Superannuation

This weeks question is another common query; can you withdraw the money in your superannuation early?

This seems to be one of the first 'solutions' to pop into the mind of a lot of people when really it should be considered only as a last resort.

By law, you generally get your super only when you:
- permanently retire from the workforce, and also
- reach the minimum age set by law, called your 'preservation age' (this is typically between 55 and 60 depending when you were born).

You can get your super earlier only if you:
- suffer permanent incapacity for work, or
- possibly in cases of severe financial hardship, or
- on 'compassionate grounds'.

Severe financial hardship

Contact your fund. If the rules allow early release of benefits, you must satisfy the trustee that you have been receiving a Commonwealth income support payment for a continuous period of 26 weeks and you cannot meet your reasonable and immediate family living expenses.

Compassionate grounds

Contact your fund. If the rules allow early release of benefits, the 'compassionate grounds' are set out in the law. The Australian Prudential Regulation Authority (APRA) must consider your application first, before your fund trustee can make a final decision.

Compassionate grounds involve medical treatment for serious conditions that is not readily available through the public health system, transport for medical treatment, changes to a home or vehicle because of a severe disability, palliative care, funeral and burial expenses, or to prevent the forced sale of your home by your mortgagee.

Illegal early access

Avoid illegal schemes that try to get your super money out early, and save yourself from getting cheated and from heavy tax and legal penalties. These schemes are sometimes promoted by word of mouth or shady advertising.

Report to ASIC or the Australian Tax Office (ATO) anyone who tries to talk you into getting your preserved benefits early through a self-managed super fund or for a fee. AVOID THESE SCAMS and do not risk your money.

Source: Information for this response has been sourced from the Australian Securities and Investments Commission.

Lodge on Time and Don't Risk a Fine

A few people have asked when their returns must be done by so I thought it worth mentioning here.

You have until the 31 October 2007 to lodge your 2006-07 tax return.

Late fines range from $110 to $550 if you lodge within four months after the due date, and up to $2,750 after that period. Interest is also incurred on outstanding tax.

Individuals lodging their own return must do so by October 31, whereas those registered under a tax agent have longer.

One reason many people avoid lodging on time is the fear they will have to pay a tax debt. If this applies to you, be aware that:

• you have plenty of time before now and the first payment,


• the ATO can work with you to come up with a manageable payment plan, and


• the longer you leave it, the more fines and interest charges you will eventually have to pay.

The lesson here is lodge on time and don't risk the fines.