Life can be a bit like a game of monopoly. One moment you are winning second prize in a beauty pageant and riding high on life, then after the next roll of the dice you’ve metaphorically landed yourself in jail!
Not everything in life can be controlled, but you can control how you protect yourself against surprises to your health. If you have debts against your assets or loved ones you support, you owe it to yourself and them to make sure you are properly insured.
The whole process can seem a bit overwhelming, so detailed below are some “cheat notes” to start you on your insurance journey and to equip you with some questions you can ask your adviser to ensure that you are getting the best insurance to meet your needs.
What types of insurances can I get and how do they work?
| Type of insurance | How does it work? | Tax impact |
| Life Insurance | Life insurance pays out an agreed sum of money when you die.
People generally take out life insurance cover to repay their debts and help towards living costs of their family members if they were to die. This type of insurance can also be used in buy-sell agreements where there are multiple business partners in practice ownership. The life insurance proceeds effectively give the remaining business partners funds to pay out the estate of the business partner if they die. |
Insurance premiums outside of super are not tax deductible.
Insurance premiums inside of super can be tax deductible. |
| TPD (Total Permanent Disability) | TPD pays out a lump sum if you become totally and permanently disabled because of illness or injury.
“Own Occupation” TPD allows you to claim if you are no longer able to work in the job you had before your injury. “Any Occupation” TPD allows you to claim if you can no longer work in a suitable job for someone with your education and training. |
Premiums are not tax deductible. Amounts received on claim are not taxable. |
| Trauma | Trauma insurance pays out a lump sum if you suffer a critical illness or serious injury.
Each policy is slightly different, but trauma policies usually cover conditions like cancer, heart conditions, head injury or stroke. |
Premiums are not tax deductible. Amounts received on claim are not taxable. |
| Income Protection | Income protection insurance pays a set proportion of your regular income if you are unable to work due to total or partial disability. | Premiums are tax deductible.
Amounts you receive on claim are included in your taxable income. |
Do I have the right amount of insurance?
Below are some common life events that are good triggers to review your insurance coverage to see if the amount you are covered for is correct.
| When you may need more insurance coverage:
– Purchasing a practice (or second practice) – Increasing your personal debt – Increasing your practice debt – Family situation changes (partner/kids)
|
When you may need less insurance coverage:
– Sale of Practice / Retirement – Sale of Investment Assets – Paying Down Mortgage – Paying Down Practice Debt – Significant increase in assets (inheritance etc.) – Children no longer dependent |
If any of the above events have happened to you since you last had your insurance reviewed, then now is a good time to speak with your insurance adviser.
How do I take out insurance or get it reviewed?
The best way to have your insurance comprehensively reviewed is through a financial adviser. To ensure that you receive the insurance that is most suited to your circumstances, the adviser will normally go through the following steps:
- Fact Find – The adviser will ask you about your current financial position, the state of your health and any people who are dependent on you. To make the most of this meeting, you should bring along a list of your assets and liabilities, your last year’s tax return, details of any existing insurance and statements from your super fund. Even better, send all documentation to the adviser in advance, if possible, so that they have a chance to look through everything before you meet. The other thing that you will need to tell your adviser up front is whether you have previously had any significant medical conditions, as this may alter the advice they will give you.
- Statement of Advice – After you have met with the adviser in the fact find, they will advise you about what they believe are the best insurance policies for you (brand, amounts insured, inside/outside of superannuation). The adviser should step you through all of this to make sure you understand it, and will answer any questions you have.
- Underwriting – Once you are comfortable to proceed with the advice, then your adviser will submit an application to the insurer with your health details and the amount of insurance you are applying for. The insurers will assess all of this information and confirm whether they will insure you and, if you have had prior health conditions, whether they will charge you anything additional (loading) for the insurance, or exclude any health conditions.
- Implementation – Once you and your adviser have heard back from the insurers, if you are happy to proceed with the terms of the insurance then the adviser will finalise everything with you and put the policy in place.
Whilst there are a few steps involved in the process, a good adviser will make this process as streamlined as possible and set up the policies so that they won’t need to be substantially changed in the short or medium term.
Other things to be aware of
- The earlier the better – Kin Hubbard once said that ‘fun is like insurance, the older you get, the more it costs.’ When you take out insurance on your life, the insurance company looks at your overall “risk” when they are insuring you. The key factor is your underlying health, which means that the cheapest time to lock in your insurance is when you are young, to minimise the amount of exclusions under your policy.
- Structure can make a difference – it’s important to ensure that your policies are held in the right structure for you. This can impact upon insurance affordability, the tax deductibility of some of your premiums and your ability to maximise your superannuation over your lifetime. Your adviser will be able to talk you through the impacts of holding insurance both inside and outside of superannuation to make sure you get the best possible outcome.
- Be aware of the benefits your policy offers – some income protection insurance policies have a range of benefits that you can access even if you aren’t sick. Some insurers offer health and wellbeing programs which give you access to things like nutrition and exercise consults and sessions with psychologists to support your mental health. Often this is at no extra cost so it’s worth knowing what you get and make sure you are taking advantage of it.
Life can throw many curveballs, but insurance is a great safety net. It gives you time and space to recover and heal, whilst ensuring that you are not stressing about money during this time. As a professional, you’ve spent great sums of money and time to be both technically qualified and to build up the wealth in your business. That investment can be lost in an instant if you are not protected properly. It is well worth the time and effort to ensure that everything is properly in place.
About the authors
Elissa Lippiatt
Chartered Accountant and Director
Ecovis Clark Jacobs
Accounting and Business Advisers
Brent McCullough*
Senior Adviser
Ecovis Clark Jacobs Insurance
This article first appeared in the February 2024 issues of the News Bulletin, published by the Australian Dental Association https://www.ada.org.au/Dental-Professionals/Publications/News-Bulletin
The advice/services offered by Ecovis Clark Jacobs is not authorised by MBS Advice Licence Pty Ltd and MBS Advice Licence Pty Ltd is not responsible for the advice/services provided by Ecovis Clark Jacobs.