Superannuation Insurance and Deposit Products - Essay Example

Superannuation insurance and deposit products Name: Institution: Date: Introduction Insurance is the arrangement whereby a company agrees to guarantee compensation to an individual once he or she undergoes a loss, damage or illness and even death in return for a payment of a specified premium. Superannuation on the other hand is a regular payment made into a fund by an employee towards a future pension. For some of those that are employed it is a compulsory deed for the employer to put money aside for us to use in the future. Nearly every one with a job is required to join a government approved superannuation fund. When are eligible for superannuation every time you get paid your employer pays a set amount of money into a large account which is then invested into activities like shares, property and government bonds together with cash deposits. The funds are therefore only accessible once one retires however there are some very limited reasons why one may get access to the savings early. Term life insurance is less expensive than whole or universal life coverage and is favored by the people only want life insurance for a specified period of time. Therefore this type of insurance has premiums with a coverage which has a pre-defined period of time. Another of its characteristics is the fact that the premiums can remain the same for the duration of the term that a client is covered for. Total permanent disability insurance (TPD) is a living insurance that provides a lump sum benefit compensation in case one is rendered totally disabled due to an injury or an illness and one is unlikely to go back to his normal work. Trauma insurance on the other hand is an amount of cash that is paid to a person tax free upon diagnosis of a critical illness. The illnesses covered are based on the insurance companies decisions on what illness to cover and which one not to cover. There is also the income protection insurance which is the insurance coverage that pays out when one is unable to work due to an injury or an illness. Its duration is based on retirement, death or ones return to work. This sought of insurance was formerly known as permanent health insurance. This sought of insurance provides back to work help when an individual is unable to work due to a sickness. Another major player in the life insurance and term insurance policies would be India. In his country insurance came into existence in 1956 through the amalgamation of the Indian insurance companies that were in existence then. The amalgamation was achieved with the help of the life insurance act that was passed in India then. Therefore India has been among the top key players of this sought of insurance for a long time and it therefore among the top players with Australia. Insurance is a very important thing to have especially if one is subjected to risks in his job or his daily activities it would be wise to take a cover that is going to help him or her. One of the benefits of insurance is the fact that it will help you manage the risks of relatively rare but expensive events throughout someone’s life. Without a good insurance policy one would be forced to cover the loss that he or she has experienced but with an insurance cover one can be reinstated to the original financial position that he or she was in before the event occurred. Such events include fire, accidents, theft and many more. In the insurance world there are some terms that they normally use which have different meanings. The term life insured is a person that is paid a death benefit. This means that when a life insured person dies someone gets the death benefits. The policy holder is therefore the life insured individual. There are cases where firms take out life insurance policies for their workers and when the workers die the companies benefit from the policy. We also have the term sum insured where this is the maximum amount of money that the insurance company is willing to pay someone who makes a claim. A nominated beneficiary is the person that the life insured has chosen as his beneficiary in the event that something happens and he passes away. This is to mean that he has chosen the person who is to be compensated by the insurance company when he or she dies[San14]. Inside of superannuation, term insurance premiums are tax deductible to the superannuation fund. Generally term insurance premiums are not tax deductible to the client if they pay the premiums themselves. This is in the case of the term insurance. In income protection however, the premiums are tax deductible to the superannuation fund. Therefore the income protection premiums are tax deductible to the client if they pay the premiums themselves. So in a nutshell a client’s marginal tax rate is higher than a superannuation funds marginal rate therefore it may be to the clients disadvantage to take out this cover. Therefore in all the above defined insurance covers the main advantage is the fact that the tax is deductible in the superannuation fund[Bro02]. When an individual takes out an insurance policy he or she is given the choice to choose how to structure their insurance premiums this is either through the stepped or level insurance premiums. In the stepped premiums the premium is calculated based on the person’s age, this therefore means that the younger a person is the cheaper the cost of the premiums and they keep on increasing overtime. In the level premiums on the other hand the insurance premium is calculated on an average premium which means that you pay more when you are younger and the cost decreases as one gets older. However it may not be wise t think that the cheaper stepped premium option is better[Sho94]. Nowadays the insurance companies have noticed the need for people to cover themselves and they have come up with ways to ensure that even the low earning individual has a policy that he or she can take out that will not cost him a lot. Therefore the affordability of the insurance policy depends also on the types of premiums that one has chosen so there the premiums that may be expensive and this will lead to the policy being very expensive however there are also some policies that are quite affordable and can be taken by those individuals who are not very wealthy. The Australian superannuation industry is a crucial part of the Australian financial institution as it accounts for 21% of the total finances. The Australian superannuation can be segmented into five categories. First and foremost we have the industry funds which are regulated by the superannuation entities who have historically provided for the employees working in the same industry or a group of related industries. There is also the corporate funds which are established for the benefit of the employees and are regulated by the superannuation firms. There is also the public sector funds which are superannuation firms that provide benefits for the mostly for the government employees. Retail funds on the other hand are superannuation firms that offer superannuation products to the public at a commercial basis. On the other hand there is the small funds which are the self-managed funds that are regulated by the Australian taxation office which have a maximum of five members that are trustees of the corporate trustee[Dre03]. The small funds segment has over the years overtaken the public sector and retail funds in Australia to become the single largest sector in the Australian superannuation industry. In Australia the superannuation industry is a booming industry as we can see from the statistics whereby approximately 120% of the Australian share market capitalization and 90% of the countries annual GDP are all superannuation assets. The assets had grown by approximately 10.5% per year. This has made the superannuation industry a very successful industry in Australia. The main driver for the growth in the self-managed segment of the superannuation industry has been to a large extent due to the high value of assets per member which have been transferred from other superannuation firms to SMSFs. The problem is that superannuation is not an asset class[Bir83]. Though superannuation may be viewed as a waste of money by many people it is very important as it secures an individuals future whereby the individual can be able to live a good life even after he or she has retired. One thing that we can learn is that in Australia the citizens there are getting cost effective cover from their super funds. For most people the basic cover may not be enough to care for their family incase of an illness or even incase of death. Therefore thi leads them to take out an extra cover with their super funds. This is however a process since they hacve to go to the hospital to be checked out and complete a medical questionnaire. Therefore the premiums that are as a result of the extra cover are therefore taken out of ones super account. In summery the super funds can provide members with three insurance policies. This include; life insurance cover, total permanent disability cover and income protection cover. Therefore for the other covers it my be hard for them to be provided by the super fund since their premiums may not be covered from the super account. References San14: , (Sanderson, 2014), Bro02: , (Brown, et al., 2002), Sho94: , (Showers & Shotick, 1994), Dre03: , (Drew & Stanford, 2003), Bir83: , (Bird, et al., 1983), Read More