An example of how we would help an imaginary customer and how we'd get paid.
Jenny is 25 and works in office admin, earning $50,000 when she starts and has $20,000 in Super.
Below you can see how we can help her save $3,000 in tax whilst saving for a property through the new superannuation scheme that has just been introduced.
Jenny agrees to the Standard Package with an insurance package of $250,000 Life and TPD cover plus $3,000 per month Income Protection.
We've tried to keep the simple stuff at the top and those who want to understand more complexities can read further down.
Typically we can also save customers by consolidating multiple super funds into one. Also we've assumed Jenny doesn't have current insurance policies to replace.
So in a typical situation the result should be better but again we will outline our proposal and won't do anything until you agree to it.
With no financial managment:
- Monthly pay after tax = $3,435
- Annual tax paid at $50,000 with no deductions = $8,547
- Super contributions = $4,038 after tax
Pay + Super Contributions = $41,220
With Fin15 recommendations:
- Monthly pay = $2,950
- But after paying for insurance and contributing an extra $650 per month for a property in Super
- Annual tax paid = $5,486
- Super contributions (after deducting insurance costs & Fin15 management fees) = $10,181.
Pay + Super Contributions = $45,581
The real difference? Jenny saves $3,000p.a. on tax and, after deducting saving for a property, has about the same amount to spend each month.
- As the HECS threshold changes, the medicare levy increases and Jenny's income increases we can make an even bigger difference.
- Jenny would be receiving paid about $6,000p.a. less but her super contributions have increased by about that much, although...
- There'd be some taxes when she withdraws the deposit from her super to buy a property.
- Jenny could salary sacrifice the $650 per month or save the amount, putting it into super at the end of the financial year and then claim it as a tax deduction.
- Assuming 2017/2018 Financial year.
Insurance Policies and Premiums
The insurance costs $1,204.12 in year 1, with "Level" premiums (see below) assuming Jenny is 25, works in office admin and earns $50,000.
Insurance package: $250,000 Life and TPD plus $3,000 per month Income Protection.
This insurance premiums are:
- Income Protection (outside super) = $703.15 (tax deductible)
- TPD Own (outside super) = $279.56
- Life & TPD (inside super) = $277.97
- TPD is Total and Permanent Disability: Insurance against suffering a TPD 'event' meaning you can't work again. Standard is "Any Occupation" which means you have to be unable to perform any job to claim. Here we upgraded to "Own Occupation" - it's higher quality but a proportion needs to paid outside of super.
- Income Protection: If you are sick or injured and can't work it pays you monthly (you should get enough to cover your living expenses. Standard policies often meaning waiting 90 days for payments that last for 2 years. Here we went for 30days waiting and benefits till age 65. This should be paid outside of Super (so you receive the payments) and is tax deductible.
- Important! You need to prove a certain amount of income to get Income Protection so often with students we can't recommend it and will add it in later.
- We research different options and combinations depending on the customer, how much you can afford out of pocket etc. Basically we try to utilise super as much as we can unless taxation benefits make it worthwhile.
Fin15 aims to lock you into really good cover when it's as cheap as possible - you will see below how much it can save you. Then if you need more cover for a period we can work out the best policies to add on top. Our job is to work with you over time to ensure you have great value for money cover as well as helping with the administration and claiming - minimising the chances of any issues.
Commissions & Fees
In Year 1 Fin15 would receive a $250^ fee + $361.24* = $611.24
In Year 2 Fin15 would receive a $250 fee + $50 MER fee** + $383.50 commissions = $683.50
^Standard package fee - paid from Jenny's Super
*Insurance commissions - paid by the Insurance Company
**MER fee - paid from Jenny's Super. Jenny was allocated an MER rate at joining of 0.50% on her Super balance. Fin15 deduct the initial balance ($20,000), and apply it to remaining amount ($10,000). MER rate is typically determined by and multiplying the age at joining (25) by 0.02%.
- In year 1 Fin15 would receive commissions of $361.24 p.a.
- Premiums increase rapidly as you get older customers - Jenny's premiums are level and so are fixed
- In year 2 assuming after contributions and growth of $10,000 meaning Jenny would then has a $30,000 Super balance.
- There are other strategies we could use to reduce premiums such as increasing the waiting period on Income Protection (if you have savings).
- This strategy was chosen with a high proportion outside of super and we can use that and $650/month savings for a property in super to get Jenny under the future $42,000 threshold for paying back HECS in 2018/19 (currently these thresholds start at $55,874).
- Remember we are not taking into account Super and Funds Management Fees she is already paying, nor the fees Jenny would be paying on the super/investment products we recommend.
- We also are not taking into account any insurance policies Jenny may already have that we would cancel after replacing them with the improved policies.
- You may have good cover already (and we'd recommend you to keep it), you may need more cover and people with debt usually cover that debt with extra Life and TPD cover. We try to start out with you need and what you can afford.
Every client receives a document detailing the fees they are paying Fin15, fees they are paying on products and commissions Fin15 receives as a result of recommending products. We are committed to full transparency so if you don't understand ANYTHING we want you to ask.
Long Term Savings on Insurance
"Level" premiums go up only slightly each year and we generally prefer these to the standard "Stepped" premiums.
By recommending "Level" premiums we know that initially you will be paying higher premiums in comparison to "Stepped" but "Stepped" premiums rapidly increase.
When Jenny is 40 she will have paid about the same in "Level" premiums for her as if she had chosen "Stepped". By the time she is 50 Jenny would be over $20,000 ahead.
There are other factors that need to be balanced when we consider if "Level" is better than "Stepped" like how long do you intend to hold the insurance for.
Typically the standard and recommended Life, TPD, Income Protection and Trauma policies are stepped. This is usually the case as recommendations are not long term. We focus on the long term and, therefore, prefer level commissions as opposed to loading the year 1 commission up which works out better if policies are changed every few years.
We want to work with you, as a customer, for decades and that is how we have designed our business. So we think, if you can afford it, the best thing to do is work out a solid base of policies when you start your career that will serve you throughout your working life. So as things change, you change careers and things in your life change (marriage, children, extended leave, starting a business...) you keep this baseline of cover. Then at those stages when you need extra we will work with you to find the best cover to add on top of that.
Fin15 is currently finalising the legal and regulatory requirements to launch soon!
We are working with an independent group (=not a big bank) and working through all the steps so we have a solid base from which to start.
Our core team has over 50 years of experience in the financial industry and are fed up with how the industry treats their clients. We are on a mission to change that.
Once we are fully compliant we will open our service to a select group of early customers. To be one of our first customers please enter your email below: