Get help choosing insurance cover

When things go wrong, it's nice to know you're covered. But getting suitable insurance cover can be a matter of getting professional advice.

Protecting what you have worked hard for is important, so it’s essential to get appropriate insurance cover. To do that, you need help.

It’s a good idea to speak to your financial adviser about your personal cover regularly, especially if there have been changes in your life, such as a new home loan, the arrival of children or changes to your marital status.

Life insurance

Several types of products fall under the broad category of life insurance, including life cover, trauma cover, income protection, and total and permanent disability (TPD) insurance.

Life cover pays the beneficiaries on your policy a predetermined amount when you die.

TPD insurance pays a lump sum if you are totally and permanently disabled to help with rehabilitation and living costs. TPD is often offered within superannuation and bundled with life cover.

Trauma cover insures you for specific catastrophic illnesses or injuries, such as heart disease, loss of limbs or cancer.

Income protection provides money to keep you going if you’re unable to work because of sickness or injury.

Affordability

There are a number of ways you may be able to cut the cost of insurance without reducing your cover.

For example, some insurers offer ‘bundle’ discounts, which means they reduce premiums if you have several policies with the company.

Certain premiums, such as those for income protection insurance, are also tax deductible if you pay them yourself. This may make these policies more affordable.

Stepped vs Level premiums

Another option is to consider ‘stepped’ over ‘level’ premiums.

Stepped premiums may be cheaper when the policy is issued but increase as you age. It pays to do the sums and consider what the total cost of the premiums will be over five years or so.

This may be a good option for new business owners or others who don’t have a lot of disposable income but expect to earn more over time.

Level premiums are not affected by your age, but are generally more expensive than stepped premiums in the beginning. If you want to control your costs over time and intend to hold the insurance for a long period, level premiums may be less expensive in the long term. Nevertheless, the premiums may be affected by inflation or be adjusted by the insurer.

You may also be able to have a combination of stepped and level premiums based on your circumstances and policy structure. For example, you may want level premiums for income protection and trauma cover if you intend to have them for the long term, and stepped premiums for life cover and TPD. The important thing is to review your premium structures regularly with your adviser.

Superannuation options

Funding life insurance through a superannuation fund may be tax effective. In fact, it is common to use a super-linked policy when bundling life cover with TPD.

The result may be significantly lower premiums and it may also be possible to increase the sums insured for no additional net cost.

Funding income protection through superannuation, however, is subject to terms and conditions that your financial adviser can explain. In many cases, it may be better to fund income protection outside superannuation.

Seek advice

Before committing to any insurance, it’s crucial to speak with an expert adviser who will explain the different types of insurance and their applications and calculate what cover you need.

They can also be there to lend a helping hand at claim time, working hard to smooth the way and reduce the stress on your or your family.

If you would like more information or would like to arrange a complimentary, obligation free meeting with an adviser, please contact our office on (08) 9364 3160 or email clientservices@stottsure.com.au

Stottsure Financial Advice

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Economic Developments

Australia:

• The Reserve Bank of Australia [RBA], reduced the Cash Rate to a record low of 0.75% on 1 October, well below the yearly inflation rate of 1.6%. This also took bank Term Deposit rates below the inflation rate, for example, the Commonwealth Bank 6 month Term Deposit rate has moved down from 2.3% to 1.55% over the past year. Concerns with why the RBA has been so aggressive on monetary policy has seen consumer confidence decline. Central bank policies have not created the growth or inflation targets desired, thus offshore actions give some insight into likely effects on the Australian economy of similar policies.
• As the RBA mimics offshore monetary policy it increases the risk that ultimately they will try quantitative easing [QE]. The reality is that removing the reliance on credit growth for economic growth, removing Over the Counter derivative risk from the financial system, sound fiscal policy and the implementation of a sound strategic vision for the future by Governments, are necessary to revive and develop sustainable economies. However, to date, there appears to be little recognition of what is needed and indeed such a strategy may be too complex to successfully move through a democratic system.
• It is possible that technological change over the next 20 years will be so substantial that a complete redesign of the current economic system will become necessary.
• It is also possible that another economic crisis will provide the political opportunity to move to a cashless system, which would ultimately be highly beneficial to banks but would erode individual rights and increase government control. As we have noted in prior newsletters, there are currently efforts by the Australian government to ban the use of cash for transactions above $10,000. While this is said to be necessary to reduce the black economy, it has also been suggested by the International Monetary Fund [IMF] that a cashless economy is necessary to lock people into the banking system should interest rates need to be pushed into the negative. Thus there is some speculation the Australian government is positioning for a possible eventual move to negative interest rates in Australia.
• Australia’s unemployment rate lifted to a 12-month high in August of 5.3%, following a reduction in 15,500 jobs, the figure was partly saved by a 50,200 lift in part-time employment.
• Given high household debt levels in Australia, the economy is vulnerable if unemployment was to increase substantially.

·         Approximately 30% of global tradable bonds are now at negative yields worth approximately $25 trillion. As we have noted in prior newsletters this situation is essentially a soft default and demonstrates a lack of confidence in the financial system.

• Governments combined with banks and central banks have essentially created a global economic system that can perhaps best be described as “a Titanic looking for an iceberg” big pension funds and other financial managers know this and hence they are electing to take a small loss in percentage terms to reduce the risk of taking a big loss should the system fall apart. Remember that large pension funds are investing for the very long term and thus taking long term defensive positions in negatively yielding government bonds are more attractive than say listed companies that are commonly significantly judged on quarterly performance. 
• A problem for fund managers and investors, and to continue the Titanic comparison, is that the Titanic could have sailed back and forth across the Atlantic for decades and today be largely forgotten. It needed a collision with an iceberg to reveal the vessel’s structural problems. The global economy is essentially in the same situation.
• This makes fund management difficult, because of the timing problem, and the reality that an iceberg need never be hit. By buying negatively yielding government bonds the large fund managers have concluded that there are sufficient icebergs around for highly defensive positioning.
• The Australian market is anticipating further cuts to the Cash Rate, possibly to 0.50% in 2020 when the RBA may follow the US, EU and Japan into Quantitative Easing, though this could be a risky strategy given the Australian currency is not a major currency. Additionally, this leads the world dangerously close to competitive currency devaluation, an error that was made in the lead up to the Great Depression in the 1930s.

• The gold price [US$1507/oz.] and silver price [US$17.57/oz.] were both weaker over the past month as traders took some profits from the move up since May. Nickel prices have remained strong following the Indonesian nickel export ban [US$17,434.00/tonne].

• Iron ore prices are continuing to weaken, as are coal prices. 

Bond Markets:

• The Australian 10-year bond yield is 0.88%. The record high yield for 10-year bonds was 16.50% in 1982, the record low was 0.85% in August 2019.
• The 2-year yield is 0.63% and the 5-year yield is 0.617%. 

World:

• The US Government 10-year bond yield is 1.54% continuing its long term downtrend. Rates were cut for the first time in 11 years in July. The current Federal Funds rate is 1.75% to 2.25%.
• The US Federal Reserve has recently advised that it will start to expand its balance sheet again, which is essentially an admission that moves to decrease the balance sheet and thus monetary policy efforts have been, at least to date, unsuccessful.

• The next Federal Open Markets Committee meeting is expected 29-30 October, the Federal Reserve has hinted that it will reduce the Federal Funds rate again at this meeting.
• The European Central Bank [ECB] looks to be in watchful waiting mode, with what appears a slight leaning away from further interest rate cuts. EU economic growth remains subdued.
• China and the US remain in trade negotiations, with China’s GDP expected to slow to 6.1% in the July- September quarter.
• China-US trade negotiations look increasingly fragile, with the IMF advising it sees a global slowdown possible due to the trade negotiations.

Market Movements

Australian Equities:

• The ASX200 Index lifted 0.613% over the last 25 trading days. ASX200 is shown below.
• The five best and worst percentage stock performers on the ASX200 over the last 25 trading days were BELLAMY’S AUSTRALIA ORDINARY [BAL] 50.93%, NUFARM LIMITED ORDINARY [NUF] 37.98%, MAYNE PHARMA LTD ORDINARY [MYX] 28.26%, PREMIER INVESTMENTS ORDINARY [PMV] 24.76%, COLLINS FOODS LTD ORDINARY[CKF] 21.06% The poorest performing stocks were WEBJET LIMITED ORDINARY [WEB] -18.33%, AMAYSIM AUS LTD ORDINARY [AYS] -18.60%, BRAVURA SOLUTION LTD ORDINARY [BVS] -19.76%, RESOLUTE MINING ORDINARY [RSG] -20.80%, SYRAH RESOURCES ORDINARY [SYR] -31.15%.
• The five best and worst percentage performing sectors in the ASX 200 over the last 25 trading days were EMERGING COMPANIES [XEC] 3.28%, CONSUMER STAPLES [XSJ] 1.68%, S&P/ASX SMALL ORDS [XSO] 1.43%, ENERGY [XEJ] 1.36% and CONS DISCRETIONARY [XDJ] 1.31%.The poorest performing sectors were METALS AND MINING [XMM] -0.79%. INVERSE DAILY INDEX [XIN] -1.18%, REAL ESTATE SECTOR [XRE -1.53%, A-REIT [XPJ] -1.77%. GOLD [XGD] -4.48%.

Global Equities:

• US third-quarter earnings, expected to get underway shortly, are forecast to see a 4.1% fall in S&P company earnings over the same period a year ago. If this forecast is correct it will be the third quarter in a row of lower earnings over the previous corresponding period a year earlier.
• The broad global equities index (MSCI ACWI) delivered a -2.28% in the past month and was 13.59% higher year to date. THE MSCI Emerging markets index ended the month of September down 4.3%. The US S&P500 fell 2.88% in September, and is up approximately 21% year to date, the STOXX Europe 600 Index was down 4.19% over the past month, and up 15.41% year to date. The Shanghai stock index was down 3.30% over the past month and up 3.70% year to date.

Looking Ahead:

• As US-China trade negotiations drag on, and despite the strongly negatively yielding bond markets there was some sign of yields drifting higher in some markets. Expectations of a global economic slowing are being in part offset by continued expectations of central bank moves to reduce interest rates and the Federal Reserve’s move to once again expand its balance sheet, something that may have been anticipated by the negative-yielding bond buyers.
• An anticipated decline in US Company earnings is starting to see volatility return to the stock market.
• As we noted last month, it is important to remember with the market to the tune of US$17 trillion positioned for further declines in bond yields, should bond yields actually rise, this would create massive loss-making positions for these investors. However, these investors appear to think the downside of their positioning is covered by the Federal Reserve, They could be correct.
• Last month we speculated that the US$17 trillion flooding into negatively yielding bonds looked like it was acting on some type of forward information, this month we find out what that information was with the announcement that the Federal Reserve will return to increasing its balance sheet.
• We currently think that technology will ultimately force a decline in employment opportunities, eventually forcing a redesign of the economic system towards a universal basic income. What happens to the Fed will ultimately be determined politically. This probably clarifies President Trump’s recent attacks on the Federal Reserve. The Fed is not an independent body and is owned by the major commercial banks.
• We continue to see the Australian economy as vulnerable to external shocks and expect the global economy to remain lacklustre. We expect stock market volatility to increase and recommend maintaining conservative positioning.

Words by TWD:
The information in this Blog is of a general nature. It does not take your specific needs or circumstances into consideration. You should look at your own financial position, objectives and requirements and seek financial advice before making any financial decisions.