Priority Protection
Priority Protection provides a selection of cover options to cater for a broad range of insurance needs.
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{{label}}19 June 2020
Welcome to this month’s technical roundup from the TECE team. This update helps keep you up to date with the latest industry news and technical developments in financial advice relating to insurance, superannuation, tax and estate planning.
With the end of the 2019/20 financial year fast approaching, many people may be wondering how much they can contribute to their superannuation to reduce tax and/or increase their superannuation savings.
The information below is an EOFY checklist that provides a summary of the key superannuation and insurance year-end planning actions that advisers should consider for clients in 2019/20.
Measures | Clients impacted | Key actions |
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Track the concessional contributions (CC) cap |
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Salary sacrifice vs personal deductible contributions | All clients that are eligible to make a personal contribution |
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Personal deductible contribution check list | All clients that are eligible to make a personal contribution
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Catch-up concessional contributions | Clients with a total super balance (TSB) of less than $500,000 as at 30 June 2019 who have not maximised their CC cap in 2018/19
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Div 293 tax threshold for very high income earners ($250,000+) | Clients with total income for surcharge purposes plus CCs (“low tax contributions”) that exceed $250,000 |
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Non-concessional contributions (NCC) cap of $100,000 or $300,000 under the bring-forward rules | Clients with available after-tax funds wanting to make NCCs |
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Restricted bring-forward rules where TSB exceeds $1.4m | Clients with TSB at 30/6/19:
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Measures | Clients impacted | Key actions |
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Review insurance needs |
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Measures | Clients impacted | Key actions |
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Review super death benefit nomination forms | Clients who have experienced the following life events: births, deaths, marriages, separation, divorce, inheritance or receipt of large sums of cash, child turns 18, insolvency or bankruptcy, enter or cease dependency or interdependency, etc |
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Type of death benefit nomination form: Binding vs non-binding vs non-lapsing nominations |
All clients with super funds |
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Review binding death benefit nomination (BDBN) conditions | Clients with a BDBN |
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Insurance-only super funds | Clients who hold cover through an insurance-only super fund and have another super fund with their accumulated super benefits |
Clients need to establish and maintain two beneficiary nomination forms as each fund has their own set of rules when paying death benefits |
Did you know that if an individual becomes bankrupt, certain life insurance policies (both inside and outside of superannuation) may be protected against bankruptcy?
Section 116(1) of the Bankruptcy Act 1966 (the Act) provides a broad description of ‘property’ that is divisible amongst creditors. This includes all property that:
The definition of ‘property’ would normally include life insurance policies and their proceeds, however, section 116(2) of the Act specifically excludes certain assets such as from being divisible among creditors, such as:
However, there is a discrepancy between the Bankruptcy Act 1966 and the Life Insurance Act 1995 as to what constitutes a policy of ‘life insurance’ as opposed to policy of ‘life assurance’.
The Bankruptcy Act does not include reference to the term ‘life insurance’. Instead, it refers to 'life assurance’, which is undefined. At common law (as expressed by the High Court in National Mutual Life Association of Australasia Ltd v Federal Commissioner of Taxation (1959)), the definition of life assurance refers to policies on the life of an insured person (ie. a pure life insurance policy) as opposed to policies covering total and permanent disability (TPD), trauma, and income protection.
Whereas the Life Insurance Act defines a policy of ‘life insurance’ to also include any TPD, trauma and income protection.
This means the exemption under the Bankruptcy Act will only protect a bankrupt person's life insurance policy (and generally any TPD or trauma policies that are riders to that life policy) from being divisible amongst the creditors of the bankrupt. Thus, in the event of bankruptcy, the policy proceeds would go to the bankrupt policy owner, a surviving joint owner or a nominated beneficiary, or to the bankrupt policy owner’s estate.
As stand-alone TPD, trauma, and income protection policies are not considered ‘life insurance’ policies at common law, these policies will not be excluded from being property divisible amongst creditors of a bankrupt.
Q: My client has been divorced for over 10 years. His ex-wife owns a life insurance policy with AIA over his life and she continues to pay the premiums on the life insured (my client).
My client does not want the policy unless it is specifically for the benefit of his daughter, however there is no beneficiary listed on the policy. My client’s ex-wife refuses to nominate the daughter and does not want to transfer the life insurance policy to my client (as the life insured).
Does my client have any ability to remove himself as the life insured?
A: AIA’s strict legal obligation is to the policy owner first, not the insured.
As we (AIA) don’t know what all the circumstances might be between the ex-spouses, we cannot amend, change or vary the policy without the policy owner’s agreement.
Thus, the ex-wife as the policy owner does not have to cancel the policy or alter the beneficiary to the daughter as is being requested in this case.
Do you have a technical question about a financial advice strategy or need to find technical resource material? Don’t hesitate to email us at tece@aia.com
Kind regards,
The AIA Technical and Education Centre of Excellence (TECE) Team
Copyright © 2020 AIA Australia Limited (ABN 79 004 837 861 AFSL 230043). All rights reserved. This information is intended for financial advisers only and is not for wider distribution. This information is current at the date of distribution and is subject to change. This is general information in summary only, without taking into account the objectives, financial situation, needs or personal circumstances of any individual, and may not be exhaustive. It is not intended as financial, legal, medical, tax or other advice.