7 Key Points Sydney Solicitors & Barristers Should Be Aware Of When Comparing Life Insurance, Income Protection, Total & Permanent Disability or Trauma Cover
Life insurance – unless it’s your legal specialty, chances are it’s not your favourite topic. Being time poor is an unfortunate fact of life for lawyers in Sydney. This means finding the right cover and having this cover appropriately structured and reviewed is often time consuming and difficult to get around to doing.
You have unique life insurance needs as a result of your profession, both for personal insurance, and business insurance. Using many years of extensive experience advising legal professionals and working in Sydney’s Life insurance industry, Roy Agranat (Founder and Senior Adviser) at Fairbridge Financial Services has identified 7 key points Sydney legal professionals should be aware of when thinking about life insurance.
Not All Life Insurance Is the Same
There is no shortage of Life insurance options. In fact there are probably in excess of 100 permutations of income protection alone available to Sydney lawyers. We’ve often heard clients ask “Isn’t life insurance only for when you die? What good does it do me when I’m alive?” The truth is, Life insurance varies widely and isn’t just for when someone dies. There are numerous types of Life insurances ranging from Trauma (sickness) and TPD (Total and Permanent Disability), to Income Protection (for the loss of income due to sickness or injury), Business Expense cover, and yes, death.
You can use Life insurance to protect your business by insuring the personnel in your firm who contribute the most financially through Key Man Insurance policies. You can ensure that if a covered person is injured or ill, fixed costs will still get paid through Business Expense cover; or, ensure you still make a living if you’re sick or injured with Income Protection and Trauma cover.
With the recent launch of PPS Mutual insurance, available exclusively to professionals in Australia (including professions such as doctors, lawyers, and accountants), legal professionals now also have a choice in the overarching holding structure of their insurance provider. By owning cover within a mutual, and an insurance product that is available exclusively to select professionals, you may be able to take advantage of certain product features tailored specifically to your lifestyle needs, as well as the availability of a profit share account. Whilst the structure or products offered by PPS Mutual may not necessarily be the best option for your personal circumstances and life insurance needs, it is always recommended that you speak with an accredited, non-biased, life insurance broker in order to ensure you are making an informed decision as to the best products to meed your needs.
Think Twice About the Cover in Your Superannuation Fund
Default cover via your superfund might seem like a ‘good and convenient option’. However, upon closer scrutiny you may be surprised to find out that the policy doesn’t perform as you expect it to. Check your cover now as you certainly don’t want to discover you have insufficient insurance when you try to make a claim. As a legal professional specialising in what you do, would you be comfortable to rely on an “Any occupation” disability definition that reads as follows:
“…be permanently incapacitated to such an extent as to render you unlikely ever to engage in any gainful occupation, business, profession or employment, for which you are reasonably suited by education, training or experience”.
If you are a member of a popular superfund for the legal profession, then this may be applicable to you! When considering Total & Permanent Disability (TPD) you should be considering an “Own occupation” definition to ensure you have the best possible TPD protection.
Because levels of default cover do not take your personal situation and insurance needs into account, more often than not, relying on these levels of cover will result in underinsurance, leaving you and your family exposed. Think twice before going this route.
Understand what Income is Insurable: How to Obtain Maximum Cover and What Happens to The Covering Of Business Expenses as a Sole Practitioner
As a barrister, partner, or as an employed lawyer, you would agree that in the event of your disability due to sickness or injury you would need to have your income replaced. Without an ongoing income your lifestyle requirements will not be met. You worked very hard and spent many years studying to become a legal professional, so at the very least you should protect what could be your biggest asset, your ability to earn. With this lost, how would you fund your mortgage, living expenses, education costs, etc.? Especially with the high cost of living in Sydney.
As a barrister or lawyer in private practice, your income can vary year on year and in some cases may be distributed from a trust.
As a newly qualified lawyer, wouldn’t you want to secure a guaranteed income protection even though you have no income track record?
Insurable income is net of business expenses before personal tax and can include add backs.
Sydney lawyers or barristers who are sole practitioners should also consider covering their practice’s expenses (e.g. rent, staff salaries etc.) in case they are disabled. Whatever the source of income, Fairbridge specialises in assisting legal professionals in securing the best possible benefits.
Remember Partnership, Shareholder, or Business Protection in Your Life Insurance
When a lawyer decides to enter into a partnership (firm), instead of working as a sole practitioner, this is generally done to provide a broader service offering to clients by including a range of legal specialties. This, in turn, builds the value of the practice. If you have chosen to enter a partnership and work to build the asset value of a firm, how do you ensure this translates in to a readily saleable asset in the event of death or disability?
If this is of concern, then in order to protect the value of the partnership interest in the event of death or disability the following need to be considered.
- The need for immediate liquidity on death or disability of a partner allowing fair value to be paid to the disabled partner, or their estate in the event of death. An agreement (buy/sell) supported by correctly structured death and disability cover would provide the liquidity for either of these events.
- Keyperson cover to provide the firm with cash-flow to replace the initial loss of revenue in the event of death or disability and to provide the funds to, if need be, find a replacement lawyer.
By implementing these covers, the long term security of the firm can be established. This enables the remaining partners to cover any shortfall in revenue due to the loss, and at the same time have the funds to find a replacement specialist, allowing for continuity of client service.
Left uncovered, the loss of a partner could have devastating effects on a Sydney law firm and lead to unintended consequences for you, your family, and your lifestyle.
If you and your partners have not discussed these important asset protection matters which, if not attended to, could have devastating consequences on protecting the asset you have built up for yourself and to meet your family lifestyle needs, a Fairbridge specialist adviser will be able to assist you in getting these covers in place.
Understand the Differences between TPD, Trauma and Income Protection; Why You Need to Consider Including All Three in Benefits; and Getting the Right Life Insurance Coverage
Why do you need Income Protection, Total and Permanent Disability (TPD) and Trauma cover? There is a general misconception that if you are insured for one of these covers you don’t need the others. The problem is, if you don’t have a combination of these benefits you could be significantly underinsured in the event of a claim.
Consider if you were disabled due to an illness, (e.g. cancer). In the first instance Income Protection would provide a monthly taxable amount of approximately 75% of pre-disability income (but you still have 100% of your expenses!). Trauma cover would be paid as a tax-free lump sum to assist with medical expenses and income shortfalls. If the condition is such that the disability is permanent, then the TPD benefit allows you to retire your mortgage and other debts whilst the income protection continues to pay you a monthly benefit. Settling for the default level of cover via your superannuation, or purchasing products with inadequate definitions, can result in being unprotected at a time that you would need it the most.
Structure Your Life Insurance Policy Ownership Correctly and Nominate your Beneficiaries
As a legal professional in Sydney you understand the importance of pre-planning. This is especially relevant when structuring your Life insurance policy ownership and beneficences. Whether cover is held personally, by a 3rd party (e.g. family trust), or within the superannuation environment, each would need to be considered relative to which offers the best benefits for your family and partners.
For example, a simple structure, such as Testamentary Discretionary Trust, can make all the difference to your family from asset protection and a tax perspective in the event of your death.
Know Your Life Insurance Policy Terms
You understand the attention that needs to be given to the terms and conditions of a contract and therefore recognise the importance in seeking advice from the appropriate professionals.
At Fairbridge we understand the need to get the right Life insurance policies in place. That is why our specialist advisers will construct a portfolio combining benefits specifically tailored to meet your insurance needs. Rather than stress over the potential interpretations of policy terms, turn to advisers you can trust. We offer more than 100 combined years of specialising in providing Life insurance advice to professionals like you. We know the ins and outs of every policy in the market and offer unbiased assistance in navigating the choices that are available to you.
Contact Fairbridge today to speak with one of our specialist advisers.