AustAsia Group through our Financial Advisory Firm, AustAsia Financial Planning is able to provide advice on a range of investments which are managed funds, direct shares, direct property through AustAsia Real Estate and other various investments.
Depending upon what you are seeking and your risk profile and your cash flow, we are able to provide assistance with an investment that suits your needs. We have a number of relationships with stock brokers and other investment specialists. We prepare research and compare products that then provide a cash flow outcome or a capital growth outcome that suits our clients needs.
A direct share is a share that is listed on the Australian Stock Exchange. The shares can be investments in companies that are our biggest names such as BHP, Woodside, ANZ, NAB, Westpac and other banking organisations, Wesfarmers which owns chains such as Coles, Kmart, Target and Kleenheat Gas and other big companies. We prefer to have direct shares because it provides some transparency in when you receive dividends and*- what the reasons for shares going up and down are. There are of course risks involved because with a managed fund with an investment of $20,000 you may have exposure to 20 to 30 shares. If you had a portfolio that only held 2 shares you wouldn’t have as much diversification.
Yes you can invest through your SMSF. The SMSF must have an investment strategy and then can consider investing in some shares, a property, term deposits and other investments. There are a number of shares and investments SMSF can hold including direct shares, managed funds, precious metals such as gold, futures, property and it can borrow money.
No, you can’t purchase a business with a SMSF, however the property that the business may operate from is able to be borrowed for by the SMSF and the property then rented to the business.
Yes a SMSF can borrow money, there are various borrowing rules that relate to Superannuation Funds, set by the Superannuation Industry (Supervision) Act 1993. The rules for SMSF borrowing are that there are what’s called limited resource borrowing so the bank is only able to take it’s security over the specific asset that you are buying. That presents an issue where you can’t buy a property that is a house and land package as the ATO regards the house as one asset and the land as another. Another asset of the fund is unable to be used as security for the borrowing. This also means that if you bought a property for $500,000 and borrowed $350,000 and that property went up in value to $700,000 you are unable to redraw any of the equity to then borrow again. It also means that the borrowing you go through that you should structure your loans as interest only because any principle that is paid is unable to be redrawn out of the loan. The types of loans that SMSF’s have are different to your normal home loans because there are no offset accounts and the limits of the features that you have in terms of paying off additional money and redrawing are not available.
We recommend to clients that they have a minimum level of cover that covers their debt. As clients get older they may not have as much debt so their need for Life Insurance reduces. The reason that we recommend to cover all debts which includes a loan on a rental property, is that those hard earned assets that you have been paying and working towards, by having the life cover you can pay off the debt and then the rental income from the property or from your shares if you’ve got a margin loan can then be kept by your family in the event of your death. Or alternatively if you have Total and Permanent Disablement insurance then that can help you in your time of need. There is a maximum of life cover, however some life insurance companies won’t insure you for more than $10,000,000 regardless of what debt you have.
The major advantages of having Life Insurance is in the event of your death then there is a lump sum payment paid to your nominated beneficiary. You can nominate somebody to receive your life insurance proceeds or it can go to your Will and can be dealt with there. We recommend Life Insurance is held through your Superannuation Fund and this is for a cash flow purpose. Life Insurance is generally not tax deductible, but if it is through your Superannuation Fund it is tax deductible to your Superannuation Fund. When the benefits are paid out of your Superannuation Fund if it’s paid to your beneficiaries that are dependent upon you, ie your spouse or children under the age of 18 or in certain circumstances under the age of 25 then they don’t pay tax on that benefit.
Most insurance companies have a maximum age they will pay out a benefit for Total and Permanent Disablement of 65 years of age. If you over 65, most life insurance companies will not provide you with insurance for TPD. Life Insurance can be made available up to the age of 95 years of age. But the insurance premiums can be very costly and prohibited. We had a recent client who wanted a life insurance policy for $3,000,000 and he was aged over 70 years of age and that policy was going to cost over $60,000 per year so it wasn’t viable to have that cost.
Life Insurance covers you in the event of your death. Total and Permanent Disablement (TPD) Insurance covers you in the event that you become what’s called “totally and permanently disabled”.
TPD is generally defined as you being unable to do the five basic things each day:
- Get yourself out of bed
- Feed yourself
- Go to the toilet yourself
- Have a shower
- Generally walk around
It’s important to know that TPD Insurance is not designed that in the event you are a paraplegic or quadriplegic does not guarantee that you actually get paid out. For example, if you lose a limb and have a prosthetic limb that means that you still have the use of your limb through a stump then you are not deemed to be TPD. It’s very important to understand that Life Insurance and TPD Insurance are safety nets in the event that the worse case scenario happens to you.
We recommend to our clients that TPD Insurance and Life Insurance is taken through Superannuation and that way you can make sure you have the cover in place that covers a lump sum amount that should pay out all of your debts.
The life insurance process requires you to do the following:
- Review the quotes as to how much the cost is going to be, the level of cover you require, and then from there select your life insurance company to insure your life with.
- Through the advice process, we sit with clients and review their asset and liabilities position to make sure that you receive the right insurance cover that will payout all debts as necessary.
- Once the amount of cover and company has been selected, the process requires you put in an application for life insurance.
- The application may require, depending on the level of cover that you seek, you to have a personal statement, and blood and medical tests depending on individual factors (age, etc).
- You may also be required to take part in other tests as required by the insurance company to determine your potential risk to them as your insurer.
- Once you have been through these tests, there are three potential outcomes:
- You may either receive approval; or
- If another issue is raised, receive what is known as exclusion to exclude a particular aspect from the policy (for example, a sickness, body part); or
- Alternatively receive a loading, this is an increase on the cost of your insurance due to a pre-existing condition that the insurance company may want to protect themselves against.
Most life insurance companies will allow you to increase your level of cover. Some insurance companies allow you to increase your cover by up to 25% by completing a statement on a form that you are still in good health. The insurance company may contact your General Practitioner to confirm there are no major health concerns but that is generally the process. If you wish to have your cover increased by more than 25% then a full application is required together with a personal statement of your health position and may also require updated blood and medical tests.
Life Insurance premiums are calculated by life insurance companies as a risk return profile. The risk they provide to themselves is what if they insure you and you die before your life expectancy. Life insurance premiums are cheaper earlier in your life, so we recommend through Superannuation that you get Life Insurance cover at an early age such as 25 – 35. Once you are over the age of 35 Life Insurance premiums start to increase as you get older you are more likely to have more ailments such as wear and tear on your back, knees and other areas.
In the event of your death, your life insurance proceeds, that is the lump sum amount you are insured for is generally paid out to who is nominated on your policy. If the policy is through your Superannuation Fund and the Superannuation Fund owns the policy so the life insurance proceeds go through into your Superannuation Fund. The Superannuation Fund you would generally then have nominated a beneficiary or nominated that it goes to your estate. If your Life Insurance policy is not owned by the Superannuation Fund, generally you are required to nominate the beneficiary or nominate your Will. The nomination of your Will is generally the nomination of the legal or personal representative as that is the executor of your Will upon your passing away.
You can nominate friends or other people to receive the proceeds of your Life Insurance or Superannuation policy, however you should be aware that in some instances that if the life policy is not structured correctly the recipients may receive a capital gain by receiving as being nominated under a policy. That capital gain is then generally taxable in the recipients tax return. If the beneficiary (a relative or not) is a financial dependent of you, then the financial dependent is able to receive those monies tax free where it is from the Superannuation Fund.
AustAsia Group through our Financial Advising business, AustAsia Financial Planning is the holder of an Australian Financial Services Licence and is a Licenced Insurance Broker. As such we are able to arrange insurance policies with a variety of life insurance providers. Life insurance companies generally pay commission for the placement of business, and we are required to advice clients of the commission amounts prior to placing any cover for you. The payment of that commission comes as a payment from the life insurance company and it is not an additional cost to you. Some clients have thought by going direct to the life insurance company they will get a reduction in premiums as there is no commission payable. However that does not occur. The commission that we are paid is to remunerate us for preparing the life insurance application and running the entire process. We are also generally paid a trail commission each year and that is to compensate us to assist you by looking at your ongoing management of your life insurance.