If you are self-employed, or you have a spouse who is on a low income, you can save on the cost of life insurance premiums by buying insurance cover through a superannuation fund rather than as a separate 'ordinary' policy. In some cases, this strategy can reduce your premiums by almost 50%.
Usually super funds will offer insurance to fund members against death, as well as total and permanent disability (TPD). Some funds also provide additional insurance to protect against loss of income and temporary disability.
How Does The Strategy Work?
The same tax deductions and offsets that apply to superannuation also apply to insurance purchased through a superannuation fund. If you’re self-employed, you can claim a tax deduction on your super contributions, irrespective of whether the contribution is used to purchase investments or insurance. Similarly, if you are making super contributions on behalf of a non-working or low income spouse, you may be able to claim a tax offset of up to $540 p.a.
These tax benefits can make it significantly cheaper on an after-tax basis to insure through a super fund rather than through a non-super insurance policy. All you need to do is nominate how your contributions are to be allocated between the superannuation fund and the insurance policy.
The Benefits
· The amount saved via deductions and offsets can be used to increase your level of insurance cover.
· This strategy is ideal if you have a young family and you’re looking for financial protection.
Case Study
Andrew (age 43) is a self-employed professional married to Vivien (age 40). The couple are raising a young family and Vivien also works part-time. Andrew and Vivien both have super and separate insurance policies for death and TPD insurance in their own names. Andrew is currently paying premiums of $1,337 a year, while Vivien is paying $815 a year.
To claim a tax deduction for premiums on Andrew's insurance cover and a spouse offset for the premiums on Vivien's cover, they arrange their existing insurance cover so that it is provided through their respective super funds.
Being self-employed, Andrew can claim a tax deduction in his annual tax return **. His marginal tax rate is 46.5%.
By contributing $815 on behalf of Vivien, Andrew can claim an 18% offset in his annual tax return (Vivien is assumed to be earning less than $10,800 p.a.). (18% rebate available on a maximum contribution of $3,000)
By changing their insurance arrangements, Andrew and Vivien have a combined saving of $795 p.a.
Tips & Traps
Insurance cover purchased through a super fund is owned by the trustee of the super fund who is responsible for paying benefits.
All lump sum death benefit payments made to a dependant will be tax-free.
If you are self-employed, you can claim a tax deduction on 100% of contributions up to $50,000 (or if over 50 you can contribute up to $100,000pa over a transition period which ends 2012).
You could also reduce the cost of life insurance via a salary sacrifice arrangement. Instead of having separate insurance and paying premiums from after-tax salary, you could have the insurance through your super and pay the premiums from pre-tax salary.
As super funds get a tax deduction for death and disability premiums there should be no contributions tax charged on these premiums.
The advice contained herein does not take into account any persons particular objectives, needs or financial situation. Before making a decision regarding the acquisition or disposal of a Financial Product persons should assess whether the advice is appropriate to their objectives, needs or financial situation. Persons may wish to make this assessment themselves or seek the help of an adviser. No responsibility is taken for persons acting on the information provided. Persons doing so, do so at their own risk. Before acquiring a financial product a person should obtain a Product Disclosure Statement (PDS) relating to that product and consider the contents of the PDS before making a decision about whether to acquire the product.
Tuesday, September 29, 2009
Refinancing
Before embarking on this route you should be clear about what you hope to achieve by refinancing as it may involve the time consuming task of shopping for finance and the nerve-racking ordeal of interviews.
The most common reasons for refinancing are to:
1. Upgrade Your Home.
2. Reducing Total Interest Costs.
3. Reducing Monthly Repayments.
4. Tapping Into Home Equity.
Home Upgrade:
Upgrading your home provides the ideal opportunity for refinancing as in most situations you are upgrading to a more expensive property and borrowing to cover the shortfall.
** If you currently have a fixed loan and are upgrading your home, it is an ideal opportunity to switch to a new fixed lower rate or a variable loan.
Reducing Total Interest Costs:
If interest rates have fallen since you first obtained your home loan, consider refinancing your fixed rate loan to take advantage of the new low rates.
You could also reduce interest costs by refinancing regardless if loan rates fall, by having a shorter term even though your monthly repayments may be higher.
** Refinancing would reduce your total interest bill and perhaps reduce your monthly repayments.
** Make extra payments whenever you can to reduce your mortgage debt and save interest.
Reducing Monthly Repayments:
You can refinance your loan to reduce your monthly repayments by extending the repayment period. For example, if you have already paid off five years on an existing mortgage, refinancing a new loan on a 30year period will reduce your monthly repayments.
** By switching to a variable interest rate, if you have an existing fixed rate mortgage, it is possible to reduce your monthly interest payments.
However, if the interest rates rise again, your monthly repayments will also increase.
Tapping into Home Equity
For many people, their home is their biggest asset and source of savings. The improved value of your property and the amount you have paid off on your mortgage can be put to work for you, to borrow money.
You can refinance with a new mortgage that is larger than your remaining balance or obtain a home equity loan.
** Consider negotiating with your current lender. They may be willing to offer concessions on costs, etc. in order to retain you as a customer.
Credit card interest rates are usually higher than mortgage rates so you may save money by paying off your cards.
**If you have other debts such as credit cards and other loans, it may be cheaper to incorporate these into your mortgage
The Cost of Refinancing
The time it takes to recover the costs of refinancing should be short enough to make it worthwhile. If you think you will only be in that house for three to five years and it will take you five years to cover the costs of refinancing, then it probably is not advisable to refinance.
** Make sure you fully understand the fees that you will pay both going into and getting out of the loan.
The cost of refinancing can be considerable, particularly if you are exiting a fixed term loan. You may incur costs for ending your current loan and costs for starting a new loan such as:
· Break costs - terminating a fixed loan (perhaps thousands of dollars);
· Early termination charges - ending a variable rate loan;
· Mortgage discharge fee - an administrative cost;
· Mortgage stamp duty - on your new loan (varies from state to state);
· Valuation fees - to establish value of property to be refinanced;
· Lender’s Mortgage insurance - if you are borrowing more than 80% of the value of the property;
· Ongoing fee - monthly cost for having the loan;
· Establishment or Loan Application fee - cost for applying for a loan.
** Keep accurate records of all repayments, and check your lenders statements regularly for errors.
** Allow for an extra 1 or 2 percentage points when budgeting for repayment. Interest rates have a habit of changing.
Finally:
** Don’t compare loans based on interest rate alone. This won’t tell you exactly how much you will save on your total interest repayment compared with your current loan. You should also compare refinancing with getting a second mortgage, an equity line of credit or not refinancing at all.
We will be more than happy to refer you to a mortgage broker!
The advice contained herein does not take into account any persons particular objectives, needs or financial situation. Before making a decision regarding the acquisition or disposal of a Financial Product persons should assess whether the advice is appropriate to their objectives, needs or financial situation. Persons may wish to make this assessment themselves or seek the help of an adviser. No responsibility is taken for persons acting on the information provided. Persons doing so, do so at their own risk. Before acquiring a financial product a person should obtain a Product Disclosure Statement (PDS) relating to that product and consider the contents of the PDS before making a decision about whether to acquire the product.
The most common reasons for refinancing are to:
1. Upgrade Your Home.
2. Reducing Total Interest Costs.
3. Reducing Monthly Repayments.
4. Tapping Into Home Equity.
Home Upgrade:
Upgrading your home provides the ideal opportunity for refinancing as in most situations you are upgrading to a more expensive property and borrowing to cover the shortfall.
** If you currently have a fixed loan and are upgrading your home, it is an ideal opportunity to switch to a new fixed lower rate or a variable loan.
Reducing Total Interest Costs:
If interest rates have fallen since you first obtained your home loan, consider refinancing your fixed rate loan to take advantage of the new low rates.
You could also reduce interest costs by refinancing regardless if loan rates fall, by having a shorter term even though your monthly repayments may be higher.
** Refinancing would reduce your total interest bill and perhaps reduce your monthly repayments.
** Make extra payments whenever you can to reduce your mortgage debt and save interest.
Reducing Monthly Repayments:
You can refinance your loan to reduce your monthly repayments by extending the repayment period. For example, if you have already paid off five years on an existing mortgage, refinancing a new loan on a 30year period will reduce your monthly repayments.
** By switching to a variable interest rate, if you have an existing fixed rate mortgage, it is possible to reduce your monthly interest payments.
However, if the interest rates rise again, your monthly repayments will also increase.
Tapping into Home Equity
For many people, their home is their biggest asset and source of savings. The improved value of your property and the amount you have paid off on your mortgage can be put to work for you, to borrow money.
You can refinance with a new mortgage that is larger than your remaining balance or obtain a home equity loan.
** Consider negotiating with your current lender. They may be willing to offer concessions on costs, etc. in order to retain you as a customer.
Credit card interest rates are usually higher than mortgage rates so you may save money by paying off your cards.
**If you have other debts such as credit cards and other loans, it may be cheaper to incorporate these into your mortgage
The Cost of Refinancing
The time it takes to recover the costs of refinancing should be short enough to make it worthwhile. If you think you will only be in that house for three to five years and it will take you five years to cover the costs of refinancing, then it probably is not advisable to refinance.
** Make sure you fully understand the fees that you will pay both going into and getting out of the loan.
The cost of refinancing can be considerable, particularly if you are exiting a fixed term loan. You may incur costs for ending your current loan and costs for starting a new loan such as:
· Break costs - terminating a fixed loan (perhaps thousands of dollars);
· Early termination charges - ending a variable rate loan;
· Mortgage discharge fee - an administrative cost;
· Mortgage stamp duty - on your new loan (varies from state to state);
· Valuation fees - to establish value of property to be refinanced;
· Lender’s Mortgage insurance - if you are borrowing more than 80% of the value of the property;
· Ongoing fee - monthly cost for having the loan;
· Establishment or Loan Application fee - cost for applying for a loan.
** Keep accurate records of all repayments, and check your lenders statements regularly for errors.
** Allow for an extra 1 or 2 percentage points when budgeting for repayment. Interest rates have a habit of changing.
Finally:
** Don’t compare loans based on interest rate alone. This won’t tell you exactly how much you will save on your total interest repayment compared with your current loan. You should also compare refinancing with getting a second mortgage, an equity line of credit or not refinancing at all.
We will be more than happy to refer you to a mortgage broker!
The advice contained herein does not take into account any persons particular objectives, needs or financial situation. Before making a decision regarding the acquisition or disposal of a Financial Product persons should assess whether the advice is appropriate to their objectives, needs or financial situation. Persons may wish to make this assessment themselves or seek the help of an adviser. No responsibility is taken for persons acting on the information provided. Persons doing so, do so at their own risk. Before acquiring a financial product a person should obtain a Product Disclosure Statement (PDS) relating to that product and consider the contents of the PDS before making a decision about whether to acquire the product.
What to expect when you meet withGurney Financial Service
In the beginning…
After your initial contact with Gurney Financial Services, you will be asked to complete a personal questionnaire; this will assist and prepare you for your first appointment. It will also allow you to put together any questions, issues or thoughts you might have on financial planning or your financial future.
Your first appointment will be of a relaxed nature, where you will talk about your current financial set-up, and then look at where you would like to be in a year, maybe five, ten or even twenty years time. You will also discuss how you feel about investment risk and other information your adviser needs to prepare a comprehensive plan for you. You will be fully informed of the costs before you make any commitment to proceed.
Some topics that are covered in your first appointments will be:
o Budgeting: working out what is going where, and why.
o Savings: for debt payments, purchases, holiday’s education, retirement.
o Debt Management: how to get out of debt.
o Superannuation: looking at your current superannuation, and making sure it works for you, consolidation of superannuation products, investing into the correct investment allocation.
o Insurance: what is needed for you and your family, debts and lifestyle?
o Estate Planning: making sure your financial affairs are in order
If you own a small business, then we also look at the requirements for you as an employer, and in relation to superannuation and protection for your employees.
Before a strategy and plan is put together, Gurney Financial Services will provide you with some general information and quotations for you to think about, as well as their fees and charges. On your approval, we will then go on to the next stage which will be to design a personal and strategic holistic plan for you and your family and business.
Develop the strategy
Your adviser will view your financial situation from every angle to produce a complete financial plan. They will then present it to you in person and in writing. At this stage you can fine-tune your plan, making sure that you are perfectly comfortable with the potential outcomes.
Implementing your plan
When you’re happy with the plan, your adviser will set the wheels in motion and ask you to authorise any paperwork required.
Your adviser will prepare and follow up all documentation until completion, where you will be informed in writing that this finalised.
Keep it fresh
Your financial plan will need to be adjusted regularly to sustain the changes in your life, be they around your goals or your financial situation as well as changed in investment markets and legislation. Your adviser will discuss the level of ongoing service you require as well as costs.
Gurney Financial Services provide Annual Reviews, regular updates which include general information from the market place, aswell as personal touches. We believe in relationship building, and as a client of Gurney Financial Services, our mission would be that we would work with you to create a financial lifestyle that you and your family desire.
Gurney Financial Services, Looking after you and your family.
If you would like to meet with a representative of Gurney Financial Services, please contact us and we will be excited to meet with you, at your place or mine.
Kind Regards
Tarnia Gurney
After your initial contact with Gurney Financial Services, you will be asked to complete a personal questionnaire; this will assist and prepare you for your first appointment. It will also allow you to put together any questions, issues or thoughts you might have on financial planning or your financial future.
Your first appointment will be of a relaxed nature, where you will talk about your current financial set-up, and then look at where you would like to be in a year, maybe five, ten or even twenty years time. You will also discuss how you feel about investment risk and other information your adviser needs to prepare a comprehensive plan for you. You will be fully informed of the costs before you make any commitment to proceed.
Some topics that are covered in your first appointments will be:
o Budgeting: working out what is going where, and why.
o Savings: for debt payments, purchases, holiday’s education, retirement.
o Debt Management: how to get out of debt.
o Superannuation: looking at your current superannuation, and making sure it works for you, consolidation of superannuation products, investing into the correct investment allocation.
o Insurance: what is needed for you and your family, debts and lifestyle?
o Estate Planning: making sure your financial affairs are in order
If you own a small business, then we also look at the requirements for you as an employer, and in relation to superannuation and protection for your employees.
Before a strategy and plan is put together, Gurney Financial Services will provide you with some general information and quotations for you to think about, as well as their fees and charges. On your approval, we will then go on to the next stage which will be to design a personal and strategic holistic plan for you and your family and business.
Develop the strategy
Your adviser will view your financial situation from every angle to produce a complete financial plan. They will then present it to you in person and in writing. At this stage you can fine-tune your plan, making sure that you are perfectly comfortable with the potential outcomes.
Implementing your plan
When you’re happy with the plan, your adviser will set the wheels in motion and ask you to authorise any paperwork required.
Your adviser will prepare and follow up all documentation until completion, where you will be informed in writing that this finalised.
Keep it fresh
Your financial plan will need to be adjusted regularly to sustain the changes in your life, be they around your goals or your financial situation as well as changed in investment markets and legislation. Your adviser will discuss the level of ongoing service you require as well as costs.
Gurney Financial Services provide Annual Reviews, regular updates which include general information from the market place, aswell as personal touches. We believe in relationship building, and as a client of Gurney Financial Services, our mission would be that we would work with you to create a financial lifestyle that you and your family desire.
Gurney Financial Services, Looking after you and your family.
If you would like to meet with a representative of Gurney Financial Services, please contact us and we will be excited to meet with you, at your place or mine.
Kind Regards
Tarnia Gurney
insurance - who needs it
Insurance who needs it?
Did you know?
Ø Each year there are more than 10,000 house fires
Ø A vehicle is stolen every seven minutes in Australia
Ø Of the working population, one in six men and one in four women are expected to suffer a disability from the age of 35 to 65 that causes a loss of six months or more from work.
Ø That in 2008, the key 13 insurers, for term life, total and permanent disablement, trauma and income protection, paid out a staggering $3,045,333,112 - that's
$12 million a day!!
Ten Second Insurance Check
Ø Are you the sole income earner? Yes / No
Ø What is your total annual income?
o Less than $20,000
o $20,001 to $40,000
o $40,001 to $60,000
o $60,001 to $80,000
o $80,001 to $100, 000
o $100,001 +
Ø What are you total debts?
o Less than $100,000
o $100,001 to $250,000
o $250,001 to $500,000
o More than $500,001
o
Ø How many dependent children do you have
0 1 2 3 or more
Ø Could your partner pay the bills if you could not work? Yes / No
If you could not maintain your lifestyle without support during illness or injury, please contact Gurney Financial Services or your financial planner
Did you know?
Ø Each year there are more than 10,000 house fires
Ø A vehicle is stolen every seven minutes in Australia
Ø Of the working population, one in six men and one in four women are expected to suffer a disability from the age of 35 to 65 that causes a loss of six months or more from work.
Ø That in 2008, the key 13 insurers, for term life, total and permanent disablement, trauma and income protection, paid out a staggering $3,045,333,112 - that's
$12 million a day!!
Ten Second Insurance Check
Ø Are you the sole income earner? Yes / No
Ø What is your total annual income?
o Less than $20,000
o $20,001 to $40,000
o $40,001 to $60,000
o $60,001 to $80,000
o $80,001 to $100, 000
o $100,001 +
Ø What are you total debts?
o Less than $100,000
o $100,001 to $250,000
o $250,001 to $500,000
o More than $500,001
o
Ø How many dependent children do you have
0 1 2 3 or more
Ø Could your partner pay the bills if you could not work? Yes / No
If you could not maintain your lifestyle without support during illness or injury, please contact Gurney Financial Services or your financial planner
Dollar Cost Averaging
You don’t need to predict the future to build wealth in investment markets. You can make money by simply investing a fixed amount at regular intervals over a period of time. You can also take the guesswork out of trying to pick the right time to buy and sell, and not have to worry about putting all your money in the market at the one time. This strategy is called ‘dollar cost averaging’ and it can help you to turn the ups and downs of investment markets to your advantage.
Dollar cost averaging is a simple concept that works really well when investing on a regular basis via a managed investment. Assuming you invest a set amount each month, your money will buy more units when the unit price falls and fewer units when the unit price rises.
Things to be aware of:
Investing in shares or property (either directly or via a unit trust) allows you to access the potential for long-term capital growth.
An easy way to implement this strategy is to pay-yourself-first (i.e. invest a fixed amount of your salary each month before you spend your money on other things).
You can purchase units in a unit trust automatically by arranging to have money transferred directly from your nominated bank account or your salary. Direct Debit is available through most financial institutions and fund managers.
By reinvesting your income to purchase additional units, your regular investments can benefit from the power of compound returns.
To accelerate the creation of wealth, you could consider installment gearing, which allows you to supplement your regular investments into a managed fund with regular draw downs from an investment loan.
To find out more information you should speak to your Financial Planner.
The advice contained herein does not take into account any persons particular objectives, needs or financial situation. Before making a decision regarding the acquisition or disposal of a Financial Product persons should assess whether the advice is appropriate to their objectives, needs or financial situation. Persons may wish to make this assessment themselves or seek the help of an adviser. No responsibility is taken for persons acting on the information provided. Persons doing so, do so at their own risk. Before acquiring a financial product a person should obtain a Product Disclosure Statement (PDS) relating to that product and consider the contents of the PDS before making a decision about whether to acquire the product.
Dollar cost averaging is a simple concept that works really well when investing on a regular basis via a managed investment. Assuming you invest a set amount each month, your money will buy more units when the unit price falls and fewer units when the unit price rises.
Things to be aware of:
Investing in shares or property (either directly or via a unit trust) allows you to access the potential for long-term capital growth.
An easy way to implement this strategy is to pay-yourself-first (i.e. invest a fixed amount of your salary each month before you spend your money on other things).
You can purchase units in a unit trust automatically by arranging to have money transferred directly from your nominated bank account or your salary. Direct Debit is available through most financial institutions and fund managers.
By reinvesting your income to purchase additional units, your regular investments can benefit from the power of compound returns.
To accelerate the creation of wealth, you could consider installment gearing, which allows you to supplement your regular investments into a managed fund with regular draw downs from an investment loan.
To find out more information you should speak to your Financial Planner.
The advice contained herein does not take into account any persons particular objectives, needs or financial situation. Before making a decision regarding the acquisition or disposal of a Financial Product persons should assess whether the advice is appropriate to their objectives, needs or financial situation. Persons may wish to make this assessment themselves or seek the help of an adviser. No responsibility is taken for persons acting on the information provided. Persons doing so, do so at their own risk. Before acquiring a financial product a person should obtain a Product Disclosure Statement (PDS) relating to that product and consider the contents of the PDS before making a decision about whether to acquire the product.
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