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Personal Insurance

Discussion in 'Superannuation, SMSF & Personal Insurance' started by AsxBroker, 28th Sep, 2007.

  1. AsxBroker

    AsxBroker Well-Known Member

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    Hi,

    I was browsing the ABC website and came across:

    The World Today - Dreams shattered as mortgagees forced to sell homes

    I'm wondering how many people actually have insurance and whether it is sufficient to cover all their debt in case something does happen?

    How many people are in a position that they can self-insure if something happens?

    Cheers,

    Dan
     
  2. crc_error

    crc_error The Rule of 72

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    how is insurance going to help if you don't pay your mortgage?

    Good read though... how those agents just talk crap!

    More evidence of how IP's are becoming worse and worse investment.
     
  3. AsxBroker

    AsxBroker Well-Known Member

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    Hi CRC,

    Income Protection pays you 75% of your monthly income after a waiting period to up to age 65 if you can't work.

    Total and Permanent Disability insurance pays you a lump sum if you are totally and permanently disabled. With $1m of lump sum you can invest at a comfortable rate of 6% to give an annual income of $60,000 pa.

    Life insurance is the same as TPD except you'll never usually collect on it yourself as it only pays out on the life insured's passing away.

    So if you can't work temporarily Income Protection will pay you 75% until you get back to work. That 75% will help you pay your mortgage.

    Cheers,

    Dan
     
  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Income Protection Insurance is also tax-deductible I believe ?

    It is important to note that Lenders Mortgage Insurance (LMI) taken out when you get a property loan does NOT protect you - it protects the lenders (even though you are the one paying the premiums !!). I only mention it because I still occasionally come across people who don't fully understand this.
     
  5. AsxBroker

    AsxBroker Well-Known Member

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    Income Protection is tax deductible as the income it pays is assessable. You can only claim the premiums as a deduction if you pay for it yourself (not inside your superannuation as the trustee will claim a deduction for it).

    It is amazing how many people think that LMI is going to protect them, scarily I think it screws you over more as the bank will probably be more inclined to sell a property at a loss if they have the LMI to claim on...
     
  6. Jacque

    Jacque Team InvestEd

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    Hi Dan

    Thanks for that- quite interesting.

    Income protection insurance is a must, especially if you're self-employed, in my opinion. With mortgage stress fairly evident, especially in cities like Sydney, it's vital to insure for at least enough to enable you to be able to sell (if required) and make other arrangements, rather than wait for a MIP situation.

    The example of that house in Castle Hill (15 Henley Cl) is a little misleading, however- I know that home and remember well when it was first listed in May last yr for what I considered a VERY optimistic price, given the conditions at the time and lower buyer sentiment. The house itself wasn't in the best shape (rundown) and the large block size consisted of a lot of useless bush.

    It was on the market for over 6 mths and dropped in price (lowest point was $819K) before finally selling at auction, and I do know that the vendors were certainly not distressed sellers who had paid too much previously in a recent boom market. In fact, they were the original 1987 owners so they must have been in financial stress (through refinancing the original loan) to have to have got to this stage. Yes, it was sad, but you really need all the facts before drawing conclusions from these types of stories.

    The Hills market has definitely picked up since then, and I can attest to this, as I'm in it and also live out this way, watching recent sales with much interest :) Not all property fares well, but the good well priced stock isn't staying on the market for much past the two mth mark at the most.
     
  7. crc_error

    crc_error The Rule of 72

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    Where does it say in the article that the person suffered a sickness or injury? Sorry I missed that point.. yes insurance is vital if you have a family and mortguage.. I just assumed from the article that they had a marriage split or something..

    sorry sped through it reading :)
     
  8. Mark Laszczuk

    Mark Laszczuk Well-Known Member

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    Keep in mind that you only get paid this (income protetion) if you lose your regular income. It does not cover you simply if interest rates are raised. Yes, income protection is tax deductible, but it doesn't mean squat if you can't claim it.

    crc_error has raised an excellent point here - people (mistakenly) seem to believe that if they have insurance they are automatically covered, which is not the case.

    Mark
     
  9. AsxBroker

    AsxBroker Well-Known Member

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    Hi Jacque,

    The article is almost a year old since published so it could even actually be around 18 months old from when they actually started filming it.

    It is sometimes amazing what prices are given to property, I know a 3 br unit in nth beaches which was listed at $535k and has since been re-advertised at $510k and still for that price it is optimistic.

    In your opinion is it usually the owners or the agents which are over-optimistic about the sale price?

    Cheers,

    Dan