A recent police investigation has uncovered a multi-million dollar identity fraud scheme.

A crime syndicate has been emptying out the accounts of superannuation fund members by initiating fund rollovers to fake self-managed superannuation funds (SMSFs).

The quality of documentation used in these fraud schemes are eligibly reaching levels that superannuation funds across Australia haven't seen in a long time.

People have been advised to check their superannuation fund benefit statements twice a year, to take extra care to protect their PINs and passwords, and to be careful who they give their personal information to.

NSW Police is asking people to contact the Australian Securities and Investments Commission if they suspect that their superannuation fund has not properly accounted for their superannuation. They also encourage people to know where all of their superannuation entitlements are at all times and to make sure they are receiving regular statements.

For more information on New Superannuation Fund Identity Fraud Scheme please refer to www.xLife.com.au.

Asteron issued the first life insurance policy in Australia in 1833 (formerly Australian Assurance), and has now come out with another industry first, launching a new policy benefit called the ‘Healthy Plus Option’ which rewards healthy Australians by reducing their life insurance premiums by 20%.

The 20% discount applies immediately after policy acceptance, and is lowered by 1% each year, to a minimum of 10% over the life of the policy.

However the client is also given the choice of refreshing their policy discount by completing their qualification tests again to re-qualify for the full 20% discount.

The discount is available on Asteron’s Lifeguard Life Cover policy under a stepped premium arrangement upon meeting certain health and other risk criteria.

To qualify for the discount, questions will include your:

• age, which must be between 30 and 50 years;
• smoking status, you have not smoked for at least 5 years;
• medical history such as your weight, body mass index, blood pressure, cholesterol;
• lifestyle and any occupational hazards;
• family history; and
• driving record.

For more information on Life Insurance Premiums Reduced By 20 percent please refer to www.xLife.com.au.

Ordinary (non-superannuation) life insurance policies

For an ordinary (non-superannuation) life insurance policy, including death, TPD and trauma policies, the policy proceeds are typically payable to:

• the nominated beneficiary, or beneficiaries; otherwise
• where no nomination of beneficiary is made, the policy owner or in the event of death and the policy owner is the life insured, the policy owner’s estate.

Life insurance policy ownership
Policy ownership gives the policy owner the right to the policy proceeds where no nomination of beneficiary is made.Policy ownership is, therefore, a particularly useful device. If, for example, a client wants their spouse to receive life insurance proceeds following their death, having the spouse own the life insurance policy (with no nominated beneficiaries) will guarantee that the spouse receives the policy proceeds.However, policy ownership also gives the right to deal with the policy and this may prove problematic if the relationship between the policy owner and the life insured ceases. If, as in the above case, a life insurance policy was owned by one spouse over the life of the other, following the separation of the couple the policy would be owned by an ex-spouse. While this issue would typically be addressed in any property settlement, it can leave some clients feeling uncomfortable with this possibility.

Nomination of a beneficiary in a life insurance policyMany, but not all, life insurance contracts allow a policy owner to nominate a beneficiary, or beneficiaries, to receive any life insurance policy proceeds payable instead of the proceeds being payable to the policy owner. Such a nomination cannot be ignored or overturned by a life insurance company and, as such, binds the life company to pay the nominated beneficiary, or beneficiaries.Unlike the requirements for a superannuation nomination of beneficiary, a nominated beneficiary on an ordinary life insurance policy can, subject to any restrictions of the particular contract concerned, be any person or entity, i.e. the nominated beneficiary does not have to be a dependant. Unlike most binding superannuation death benefit nominations, an ordinary nomination does not have a maximum term of three years.

Superannuation owned life insurance policies
Where a life insurance policy (death, TPD and trauma policies) is owned by a superannuation fund, any proceeds payable under the policy are paid to the superannuation fund (as the policy owner). In the event of the death of the member, the superannuation benefits (including the insurance proceeds) will be paid to the member’s estate or dependant beneficiaries. In the event of TPD or trauma, the member has to satisfy a condition of release to access their superannuation benefits (which include the insurance proceeds).

For more information on Who Will Get Your Life Insurance Proceeds please refer to www.xLife.com.au. 

Ordinary (non-superannuation) life insurance policies

For an ordinary (non-superannuation) life insurance policy, including death, TPD and trauma policies, the policy proceeds are typically payable to:

• the nominated beneficiary, or beneficiaries; otherwise
• where no nomination of beneficiary is made, the policy owner or in the event of death and the policy owner is the life insured, the policy owner’s estate.

Life insurance policy ownership
Policy ownership gives the policy owner the right to the policy proceeds where no nomination of beneficiary is made.Policy ownership is, therefore, a particularly useful device. If, for example, a client wants their spouse to receive life insurance proceeds following their death, having the spouse own the life insurance policy (with no nominated beneficiaries) will guarantee that the spouse receives the policy proceeds.However, policy ownership also gives the right to deal with the policy and this may prove problematic if the relationship between the policy owner and the life insured ceases. If, as in the above case, a life insurance policy was owned by one spouse over the life of the other, following the separation of the couple the policy would be owned by an ex-spouse. While this issue would typically be addressed in any property settlement, it can leave some clients feeling uncomfortable with this possibility.

Nomination of a beneficiary in a life insurance policyMany, but not all, life insurance contracts allow a policy owner to nominate a beneficiary, or beneficiaries, to receive any life insurance policy proceeds payable instead of the proceeds being payable to the policy owner. Such a nomination cannot be ignored or overturned by a life insurance company and, as such, binds the life company to pay the nominated beneficiary, or beneficiaries.Unlike the requirements for a superannuation nomination of beneficiary, a nominated beneficiary on an ordinary life insurance policy can, subject to any restrictions of the particular contract concerned, be any person or entity, i.e. the nominated beneficiary does not have to be a dependant. Unlike most binding superannuation death benefit nominations, an ordinary nomination does not have a maximum term of three years.

Superannuation owned life insurance policies
Where a life insurance policy (death, TPD and trauma policies) is owned by a superannuation fund, any proceeds payable under the policy are paid to the superannuation fund (as the policy owner). In the event of the death of the member, the superannuation benefits (including the insurance proceeds) will be paid to the member’s estate or dependant beneficiaries. In the event of TPD or trauma, the member has to satisfy a condition of release to access their superannuation benefits (which include the insurance proceeds).

For more information on Who Will Get Your Life Insurance Proceeds please refer to www.xLife.com.au. 

Australia Enhances Rules Governing Life Insurance Companies

The Australian Prudential Regulation Authority (APRA) has released final prudential standards on enhancements to the prudential framework for life insurance companies.

Legislation was passed in 2009 that gave APRA power to regulate non-operating holding companies (NOHCs) of life insurance companies, including the power to determine prudential standards for life NOHCs. APRA will apply to these NOHCs the same governance and fit and proper standards that currently apply to NOHCs of authorised deposit-taking institutions (ADIs) and general insurers.  

APRA is also making some limited amendments to the audit and actuarial requirements for life insurance companies. These amendments clarify APRA’s requirements and align them more closely with those for ADIs and general insurers.

The package released today includes a response paper to submissions received on APRA’s draft proposals of May 2009 as well as the following revised prudential standards: 

• Prudential Standard LPS 510 Governance (LPS 510);
• Prudential Standard LPS 520 Fit and Proper (LPS 520);
• Prudential Standard LPS 310 Audit and Related Matters (LPS 310); and
• Prudential Standard LPS 320 Actuarial and Related Matters (LPS 320).

The response paper discusses the main issues raised in the submissions and APRA’s response to these issues. A number of clarifications were sought in the submissions, and in some instances APRA has amended its proposals to address matters raised.

APRA Executive Member John Trowbridge said these enhancements to the prudential framework for life insurance companies are important for the protection of policyholders.

For more information on Australia Enhances Rules Governing Life Insurance Companies please refer to www.xLife.com.au.

Australia Enhances Rules Governing Life Insurance Companies

The Australian Prudential Regulation Authority (APRA) has released final prudential standards on enhancements to the prudential framework for life insurance companies.

Legislation was passed in 2009 that gave APRA power to regulate non-operating holding companies (NOHCs) of life insurance companies, including the power to determine prudential standards for life NOHCs. APRA will apply to these NOHCs the same governance and fit and proper standards that currently apply to NOHCs of authorised deposit-taking institutions (ADIs) and general insurers.  

APRA is also making some limited amendments to the audit and actuarial requirements for life insurance companies. These amendments clarify APRA’s requirements and align them more closely with those for ADIs and general insurers.

The package released today includes a response paper to submissions received on APRA’s draft proposals of May 2009 as well as the following revised prudential standards: 

• Prudential Standard LPS 510 Governance (LPS 510);
• Prudential Standard LPS 520 Fit and Proper (LPS 520);
• Prudential Standard LPS 310 Audit and Related Matters (LPS 310); and
• Prudential Standard LPS 320 Actuarial and Related Matters (LPS 320).

The response paper discusses the main issues raised in the submissions and APRA’s response to these issues. A number of clarifications were sought in the submissions, and in some instances APRA has amended its proposals to address matters raised.

APRA Executive Member John Trowbridge said these enhancements to the prudential framework for life insurance companies are important for the protection of policyholders.

For more information on Australia Enhances Rules Governing Life Insurance Companies please refer to www.xLife.com.au.

Total and Permanent Disability Insurance Inside Superannuation

Over the past two and a half years, the life insurance industry has seen an increase in total and permanent disability insurance (TPD) being written within superannuation. Due to the elimination of reasonable benefit limits (RBLs) on 1 July 2007, more people have recognised the attractiveness of funding life insurance premiums through this vehicle.

Affordability is just one consideration when analysing the appropriateness of TPD insurance inside superannuation. In September 2009, the ATO issued new guidelines on what conditions must be satisfied for a member of a superannuation fund to meet a condition of release, and obtain the tax concessions, as a superannuation disability benefit (i.e. TPD benefit) (ATO ID 2009/108, ATO ID 2009/109, & ATO ID 2009/125). These guidelines provide some interesting insights.

Conditions of release for TPD Insurance inside superannuation

A disability superannuation benefit meets a condition of release when: two medical practitioners have certified, and the trustee is reasonably satisfied, that the member is unlikely, because of ill-health (whether physical or mental), to engage in gainful employment for which the member is reasonably qualified by education, training or experience. (s995-1 ITAA1997; SIS Regulations 6.01(2)).Two questions have been raised by this legislation:

1. If a member only withdraws part of the benefit, do they need to “requalify” if they wish to withdraw additional lump sum payments from superannuation?

2. After the first partial lump sum benefit is paid, if a member either recovers from their injury or illness, or is retrained so they can return to work, do they need to “requalify” for subsequent lump sum TPD benefits?

In both cases, it depends. The following example helps to explain how the legislation is applied in practice.

Example 1
A member does not need to requalify for the TPD benefit if the fund pays a series of lump sum benefits.

The provision made by the ATO was that the lump sum benefits were all paid in the same financial year, and there was no expectation that the member’s medical condition would improve in that time frame to such an extent that the original opinions from the medical practitioners would have changed. If there was a considerable time between lump sum payments (i.e. years rather than a couple of months) then it may be necessary to submit new medical certificates to receive additional TPD lump sum benefits.

For more information on Total and Permanent Disability Insurance Inside Superannuation please refer to www.xLife.com.au. 

Total and Permanent Disability Insurance Inside Superannuation

Over the past two and a half years, the life insurance industry has seen an increase in total and permanent disability insurance (TPD) being written within superannuation. Due to the elimination of reasonable benefit limits (RBLs) on 1 July 2007, more people have recognised the attractiveness of funding life insurance premiums through this vehicle.

Affordability is just one consideration when analysing the appropriateness of TPD insurance inside superannuation. In September 2009, the ATO issued new guidelines on what conditions must be satisfied for a member of a superannuation fund to meet a condition of release, and obtain the tax concessions, as a superannuation disability benefit (i.e. TPD benefit) (ATO ID 2009/108, ATO ID 2009/109, & ATO ID 2009/125). These guidelines provide some interesting insights.

Conditions of release for TPD Insurance inside superannuation

A disability superannuation benefit meets a condition of release when: two medical practitioners have certified, and the trustee is reasonably satisfied, that the member is unlikely, because of ill-health (whether physical or mental), to engage in gainful employment for which the member is reasonably qualified by education, training or experience. (s995-1 ITAA1997; SIS Regulations 6.01(2)).Two questions have been raised by this legislation:

1. If a member only withdraws part of the benefit, do they need to “requalify” if they wish to withdraw additional lump sum payments from superannuation?

2. After the first partial lump sum benefit is paid, if a member either recovers from their injury or illness, or is retrained so they can return to work, do they need to “requalify” for subsequent lump sum TPD benefits?

In both cases, it depends. The following example helps to explain how the legislation is applied in practice.

Example 1
A member does not need to requalify for the TPD benefit if the fund pays a series of lump sum benefits.

The provision made by the ATO was that the lump sum benefits were all paid in the same financial year, and there was no expectation that the member’s medical condition would improve in that time frame to such an extent that the original opinions from the medical practitioners would have changed. If there was a considerable time between lump sum payments (i.e. years rather than a couple of months) then it may be necessary to submit new medical certificates to receive additional TPD lump sum benefits.

For more information on Total and Permanent Disability Insurance Inside Superannuation please refer to www.xLife.com.au. 

TOWER Insurance Australia has warned that Australians will suffer higher product margins and limited products if the life insurance industry continues to consolidate.

"In terms of increased life market consolidation, we see major consumer concern impacts around consolidation and believe the ACCC and Government should look at this closely. We do not believe this is in the best interests of Australians as consumers." said Mr Minto, Tower's Managing Director.

"The transformation of the market to fewer, larger players creates a concern that Australians will lose choice amongst life insurance providers as well as see a loss of independent companies and innovative solutions. We will potentially see Australians being offered higher margin products as a result. Life insurance is not a price and value sensitive consumer commodity product and large players with power can create reduced choice and higher prices."

"Life insurance is not well understood by the wider community but many have benefited from it in a difficult time in a person's or family's life. Life insurance can help give people dignity and choices in times of illness and bereavement."

Mr Minto said that life insurance delivered a large social benefit and that the company was proud of its purpose and the value it delivered.

"We believe the life market which has grown at over 10% per annum for 15 years will continue to grow strongly driven by the tremendous purpose and value life insurance delivers and the large underinsurance levels of Australians.

"TOWER Australia's broad distribution footprint has helped us to sustainably grow at or in excess of market rates. It is the strength of the strategy and overall positioning coupled with execution that has stood us in good stead competitively."

He said the company was very positive about the year ahead with writing sustainable business and improving the company's return on capital as some of the key priorities.

TOWER Australia Group Limited has continued to grow strongly in 2009 and this momentum has continued into 2010.

For more information on Life Insurance Consolidation Will Affect Aussies please refer to www.xLife.com.au

Over the past 2.5 years, the life insurance industry has seen an increase in term life insurance (death benefits) being written within superannuation. Due to the elimination of reasonable benefit limits (RBLs) on 1 July 2007, more people have recognised the attractiveness of funding life insurance premiums via superannuation.

Premium affordability is often the key motivator that attracts individuals to place their term life insurance via superannuation. Premiums can be paid from existing superannuation savings, non-concessional (undeducted) contributions, salary sacrifice arrangements in the case of employees, or tax-deductible contributions by the self-employed (concessional contributions). This allows term insurance to be put in place with little if any impact on a member’s cash flow. In particular circumstances, the government can also assist with the payment of premiums through various concessions, such as government co-contributions for low-income earners, along with spouse contributions. These incentives are not available when purchasing insurance outside of the superannuation environment. Superannuation fund trustees may claim a tax deduction when they pay life insurance premiums that provide death benefits (ss 295-460 and 295-465 ITAA 1997).

It should be noted that with concessional contributions being cut in half from 1 July 2009, term insurance inside superannuation is far less attractive. For individuals who are under age 50, the concessional contribution limits are $25,000 per annum, while those individuals aged 50 and over have concessional contribution limits of $50,000.

With the impact of the Global Financial Crisis (GFC) still being felt, many clients are focusing their attentions on using their superannuation contributions to rebuild their nest egg. Every dollar that is used to pay for term insurance inside superannuation is one less dollar that can be used to invest in a concessionally taxed investment environment (taxed at a maximum rate of 15% inside super, versus a maximum rate of 46.5% outside super).

Affordability is just one part of the term insurance inside super puzzle. Two other issues involve who is entitled to receive the death benefit, and how much of the benefit is eroded due to taxation.

The following individuals are entitled to receive the benefit under the SIS Act: members may nominate in any proportion they deem appropriate their legal personal representative, spouse (legal, de-facto, same-sex), child (stepchild, adopted, ex-nuptial child of any age), part of an interdependency relationship, or any person who is financially dependent at time of death.

The only problem is that if the nomination is not correct, then the trustee of the super fund determines who receives the death benefit. There are three types of nominations. With a non-binding nomination, a trustee may consider a member’s nomination, but the trustee still has ultimate discretion. A binding nomination remains in force for three years from date of signing, but it must be witnessed by two independent witnesses and the percentage of benefits paid to the beneficiaries must be clearly specified, if the nomination does not comply, then any payments are subject to trustee discretion. Non-lapsing death benefit nomination is a binding death benefit nomination that does not lapse, remains in force until amended or revoked, but needs to be diligently monitored.

For more information on Term Life Insurance Inside Superannuation please refer to www.xLife.com.au