15 minutes with Rudy Haddad
Wealth Market is blessed to have the talented Rudy Haddad as our Head Of Practice Management & Technical Advice Delivery. Rudy holds a Diploma of Financial Planning as well as a Bachelor’s Degree in Economics. Rudy has been assisting financial advisers across Australia for 21 years with financial planning strategies. Now he supports our financial advisers with various technical and strategic questions, as well as being in charge of adviser training at Wealth Market.
Jasmin Loke, our Wealth Market National Operations and AFSL Manager, recently interviewed Rudy about the upcoming changes to Income Protection Personal Insurance policies that will be rolling out across Australia over the coming months.
Jasmin Loke (JL): Thanks for your time today Rudy.
Rudy Haddad (RH): My Pleasure!
JL: Most of our clients have income protection and those that do not are probably considering the product. Can you give us your thoughts on why income protection is such an important part of a personal protection portfolio?
RH: It’s simple really - all of us need to make a living. Income protection insurance basically provides you with a % of your wage, usually 75% of what you earn, in case you are sick or injured and can’t go to work for an extended period of time. Without an income most of us can’t keep up our monthly mortgage repayments, bills and other financial commitments for more than a few weeks. So income protection is the most effective solution out there in the marketplace today. Be mindful though, there are a number of important product features you need to consider when choosing the right product and this is where your financial adviser can really add value.
JL: Can you tell us more about why you think it’s important to get professional advice when you set up these policies?
RH: Sure. As with many specialised products it would take the average person a considerable time to learn all there is to know about the ins and outs of the product. For example, some products will not index your benefits to keep pace with the rising costs of living whereas other products will.
JL: Are there other examples?
RH: Absolutely. Where do I start! Some products have blanket pre-existing condition exclusions meaning a claim won’t be paid if it is the result of a pre-existing medical condition. There are also products that will cease paying a claim after a specified period of time, most commonly two years, as compared to products that provide coverage over a much longer time period, with the recommended norm being cover till age 65. These are just a few examples but there are many, many more…
JL: Currently income protection contracts can be established on an ‘Indemnity’ or ‘Agreed Value’ basis. However the Australian Prudential Regulatory Authority (APRA) has recently conducted a review of the Australian insurance industry and has concluded that ‘Agreed Value’ income protection contracts will no longer be available from April 2020. Can you walk us through this change?
RH: The first thing to note is that existing ‘Agreed Value’ arrangements are not impacted by the APRA announcement. However applications for new income protection cover from April 2020 will need to be done on an ‘Indemnity’ basis.
JL: What is the difference between ‘Indemnity’ and ‘Agreed Value’?
RH: It’s a little bit like comprehensive motor vehicle insurance where you can select from ‘Agreed Value’ or ‘Market Value’. With ‘Agreed Value’ you pay more for the cover but you know in advance the amount you will claim for in the event of a claim. This is in contrast to ‘Market value’ cover where the motor vehicle insurer will pay the claim based on market value at the time of the claim.
JL: Who benefits most from ‘Agreed Value’ cover?
RH: Generally speaking, people with variable incomes, such as sales people or the self-employed. Having said that each individual circumstance warrants its own assessment and this is where a financial adviser can add significant value.
JL: Is it too late for our clients to take up ‘Agreed Value’ cover if they don’t currently have it?
RH: It’s not too late but the window of opportunity is very narrow so the time to act is NOW. It takes around 30 days to go through the financial advice process and sometimes it could be longer. The adviser starts off by getting a thorough understanding of your personal circumstances and goals. They then need some time to research your situation, compile a strategy just for you and match these with the relevant products. The advice is provided to you in a document called a Statement of Advice, which contains a lot of detailed information about what we recommend you do and why.
JL: How can clients reach out to a Wealth Market Financial Adviser to review their financial planning needs or to find our more about the recent APRA announcement?
RH: Clients can directly call or email their Wealth Market Financial Adviser. Alternatively then can call Wealth Market on 1800 011 471 (weekdays, 9am to 5pm Sydney Time) or email at email@example.com
JL: Another matter that receives a lot of attention is the choice of whether to own your insurance policies within your superannuation fund, or whether it’s better to own them in your own personal name. What are your thoughts?
RH: This is a tricky one and it all comes down to your cash flow position. If you can afford to fund the premiums through your personal cash flow, then owning your cover personally often makes sense as you may be able to claim a tax deduction for the income protection premiums. This effectively means the Australian taxpayer is subsiding the cost of your premiums to the tune of your marginal tax rate! On the other hand, if you own the policy in your superannuation fund then the personal tax deduction would not apply and there may be some additional restrictions at claim time. Additionally your retirement nest egg may be impacted as the premiums will result in a lower superannuation balance at retirement, unless you are topping up your superannuation account! But we often see that people who just don’t have the cashflow don’t have a choice but to fund the premiums from their superannuation fund. Nowadays there are hybrid policies that can be split between personal and superannuation ownership. A financial adviser is the best person to run through your options and help you decide what’s right for you.
JL: Thank you so much for your time!
RH: My pleasure...