Provision Newsletter

What impact do factors like your weight, age and smoking status have on your ability to buy life insurance?

‘Sneaky smokers’ can breathe a sigh of relief – just because you’ve got an unhealthy habit or two, it doesn’t necessarily mean you can’t get insurance.

This list reveals the answers to those awkward questions you might have – but are afraid to ask – about your ability to buy life insurance.

1. Am I too overweight to buy life insurance?

Life insurance applications generally ask for your height and weight, and insurers typically use a measure known as Body Mass Index (BMI) – which is calculated by dividing your weight in kilograms by your height in metres squared – to assess whether you are overweight.

A BMI of less than 18.5 is considered underweight, with 18.5-24.9 classified as a healthy weight range. Anything over 25 is considered overweight.¹  

People who are overweight have higher rates of death and illness than people of healthy weight and are more susceptible to conditions such as cardiovascular disease, high blood pressure and type 2 diabetes.²

But having a BMI of over 25 will usually not prevent you from buying life insurance, as insurers also take other weight-related factors into account such as your waist circumference, medical history and pre-existing medical conditions. 

Depending how high your BMI is, you might be required to have a medical assessment, and based on your perceived risk, may be offered cover at a higher premium or with exclusions applied. Only in extreme cases is it likely that cover would be denied.

2. Am I too old to buy life insurance?

All life insurers have a maximum entry age, which in Australia typically ranges from 59 to 79 years old.³. The oldest age at which you can buy life insurance from AMP is 70.

However, older applicants may not be eligible for all the benefits included in the cover, or for the maximum levels of cover.

All policies also have an expiry age, after which you’re no longer covered. In Australia, this typically ranges from 85 to 100 years old.⁴ The expiry age for AMP’s stand-alone life insurance is 99 and if your life insurance is held through your super the expiry age will be lower.

But given the purpose of life insurance is to ensure the financial security of your dependents and provide a payment which will cover your debts, it’s possible that some older people may no longer need life insurance.

3. Can I get life insurance with a history of mental illness?

With almost a fifth of all Australians reporting having suffered from a mental or behavioural condition, mental illness is a relatively common occurrence and will not necessarily prevent you from buying life insurance.⁵

When assessing your application, insurance companies will consider a range of factors including the seriousness of your mental health condition, its impact on your employment and lifestyle, the success of any treatment, management strategies and any ongoing symptoms.⁶

In severe cases, you may be declined insurance, although different companies have different underwriting criteria, so it pays to shop around.

4. Can I apply as a non-smoker if I sneak a cigarette now and then?

The short answer to this question is no. Life insurers consider anyone who smokes cigarettes – regardless of the quantity – a smoker. This definition also extends to people who smoke cigars, chew tobacco or use nicotine patches.⁷

Smokers can be charged much higher premiums than non-smokers, and your premiums can be impacted by how much you smoke and how long you’ve been smoking, as these factors increase your risk of serious illness or death.⁸

In order to be classified a non-smoker, you need to have not used any nicotine product in the past year. The good news is that if you’re able to do this, you could qualify for a reduction in your premiums.⁹

It’s important not to lie about your smoking status as, in the event of a claim, your insurer could deny your claim if they can prove you’ve lied.

5. Can I leave my insurance money to someone other than my spouse?

As long as they’re aged over 18, you can generally nominate whoever you like as your life insurance beneficiary.¹⁰

You can also nominate more than one beneficiary if you choose and specify what percentage of the payment you want each person to receive.

Depending on whether your insurance is held inside or outside of super may affect who you can chose as your beneficiary.

Other considerations

The life insurance available through super is typically bought on a group basis meaning it usually guarantees you cover without taking into account your specific circumstances.¹¹

So if one or more of the situations above applies to you, opting for life insurance through your super may be the easiest and most cost-effective way to get cover.

Please contact us on |PHONE| if you seek further advice .

Many investors have been rattled by falls in share markets and are fretting about what the new year may hold.

But there are a number of reasons to suggest that after a weak 2018, 2019 will be better, and that a well-diversified portfolio should deliver reasonable returns.

1. This is a “mid-cycle” correction

Firstly, while some investors fear a recession and full-blown bear market, when you look at the global economy, what you see is not a major recession, but yet another “mid-cycle” correction. As the timeline below illustrates, the recovery since the global financial crisis has been anything but straightforward with several mid-cycle slowdowns along the way including around 2011 and 2015-16.

2. No full-blown recession

But while we are in a growth slowdown globally, I don’t see the conditions being in place to drive that into a full-blown recession. I don’t see excess investment; I don’t see lots of interest rate hikes around the world; I don’t see tight monetary policy; and I don’t see a major inflation problem.

My feeling is that growth might be a little bit subdued in the first part of 2019, but as we go through the year, we will see another pick-up in growth and that will keep the global economic growth going.

3. Oil prices falling

Another reason I have for optimism is that oil prices have fallen 30-odd per cent. That takes pressure off inflation and also puts money in the hands of consumers – a bit like a tax cut.

It’s a classic example of the benefits of these mini-downturns. It’s not so good for share markets, but ultimately lower oil prices help extend the cycle and therefore are likely to drive a recovery in share markets as we go in 2019.

4. Modest rate hikes or even cuts

The fourth reason is that interest rate rises should be constrained in 2019. The US Federal Reserve will probably raise interest rates a bit more through 2019, but I think it’s going to be at a slower pace, and it wouldn’t surprise me at all if they have a pause through the first part of 2019.

That’s reflecting the slower pace of growth that we have seen and signs that US inflation in the very short term may be constrained around the Federal Reserve’s 2% target. Other major countries are very unlikely to raise rates and some (such as China) are likely to cut them.

The impact on investment returns

Despite the concerns of investors, the four reasons above mean I don’t believe we are headed for a deep bear market or major recession and therefore I anticipate better returns in 2019, albeit things could still get worse before they get better.

** Warning: These forecasts are prospective financial information based on various assumptions. The forecasts are predictive in nature, may be affected by inaccurate assumptions or by known or unknown risks and uncertainties, and may differ materially from results ultimately achieved. Source: AMP Capital

Australia’s outlook

The local outlook is ok, but returns will be constrained.

On the one hand, there’s strength in infrastructure spending, business investment looks healthier, and export values should hold up; on the other hand, there’s the housing slowdown, which will constrain things, all of which should keep Australian interest rates on hold, or if, as we expect, ultimately drive a rate cut. So the return outlook for bank deposits will remain very low as we go through 2019.

What to watch

There are, as always, some areas to keep an eye on through 2019.

• Australian housing

  I expect Australian housing is going to remain weak. With credit tightening and rising supply, expectations are a lot weaker which is attracting fewer buyers into the property market. There’s also reduced foreign demand and a potential change of government on the horizon – all of those things are going to lead to more downside in Australian property prices, though that will be concentrated in Sydney and Melbourne.

• The US Federal Reserve

  Globally, watch to see what the US Federal Reserve are doing – but as mentioned I don’t expect dramatic US rate rises in 2019.

• The Trump trade war

  The trade issue between the US and China will bubble along periodically as we go through 2019, particularly in the first part of the year. To see whether the war flares up again, investors need to monitor what happens with the trade truce struck on the sidelines of the recent G20 summit that saw China and the US put tariff increases on hold for 90 days.

To learn more about our predictions for 2019, watch our recent webinar.

https://vimeo.com/304496565

Author: Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist, AMP Capital

Source: AMP Capital 15 Jan 2019

Important notes: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

Combining work and family responsibilities can be a balancing act so here are some of the expenses you might face as well as potential benefits

For most working parents, the first thing that comes to mind when thinking about returning to work after having a baby is finding suitable childcare.

Statistics show that 47% of couples and 51% of single parents with children under the age of five use paid childcare, and of those, 85% of couples and 67% of single parents are using childcare for work-related purposes¹.

So unless you’re fortunate enough to have family who are willing and able to care for your little one for nothing, returning to work means you’re probably adding a new outgoing to your family budget.

The government offers a Child Care Subsidy to help families with the cost of childcare. But even with government assistance taken into account, childcare can be a considerable cost, and one that has risen significantly over recent years.

Even taking into account any childcare benefit, the median amount spent per week per child was $162 for couple families and $114 for single parents in 2014 and 2015, which was an increase of 75% and 104%, respectively, on the amount spent in 2002 and 2003¹.

Long-term benefits of returning to work

If the cost of childcare will take up a large portion of your salary, returning to work might not seem to make good financial sense, particularly if you’re working part time. But it’s important to take a long-term view of your family finances, as well as considering the more immediate costs. After all, your children won’t be in childcare forever!

By returning to work after taking parental leave – even if it’s part time –  you’re continuing to build your super, as well as maintaining your industry knowledge, contacts, and skills, which will help protect your ability to both earn an income in the short term and build your future earning capacity. This will help protect your family’s long-term financial security, as well as helping you create a sustainable work/life balance.

How to deal with less income

If you’re like many Australian families you could be facing a reduced income due to the cost of childcare, or because you’ve changed your working arrangements, and are returning in a part-time role or job share.

Here’s a tip to help you adjust to the change, as well as some good ideas to help keep your finances on track.

• Ensure you have a budget, which sets out how your money will be spent, and look for any areas you can reduce your spending. If you need assistance please contact us on |PHONE|

What to do with any extra income

If you’re returning to work when your children are at school this could mean a boost in your household income, and you may be lucky enough to have money left over after all your expenses are met. If so, there are a number of things you could do to help you get ahead financially such as:

• Making additional repayments on your home loan

• Repaying an outstanding uni debt, or any other debts

• Making additional contributions to your super

• Saving for future expenses, such as your child’s education.

As a parent, there are some other important financial matters you should think about.

• Make sure you have enough insurance to help protect your loved ones should anything happen to you.

• Make a will if you don’t already have one or update your existing will to reflect your change in circumstances.

• Make sure your beneficiaries are up to date in your super.

Need more help?

If you’d like help organising your family finances and planning your return to work, speak to us on |PHONE|.

If your bank balance is looking a bit dreary, chances are what’s in your super fund could come as welcome news. See how you fare against others your age.

If you’re like 56% of young Aussies, you probably couldn’t say exactly how much money you have in super, but according to the Association of Superannuation Funds of Australia, what you’ve got saved may easily outweigh what’s in your everyday bank account¹ (now, that’s welcome news).

Meanwhile, before your eyes glaze over and you think, well that’s money I generally won’t be able to touch for another couple of decades (true that!), below is some info you may like to know now, including how you fare against others your age when it comes to what you’ve saved in super to date.

How much do other young people have in super?

Here is the average super balance by age, looking across the board and breaking it down by gender².

2017 was a great year for well diversified investors – returns were solid (balanced super funds returned around 10%) and volatility was low. So optimism was high going into 2018 but it turned out to be anything but great for investors who saw poor returns (average balanced super funds look to have lost around 1-2%) and volatile markets. As a result, and in contrast to a year ago, there is much trepidation about the year ahead. Having just written lists for Christmas presents and New Year resolutions, I was again motivated to provide a summary of key insights and views on the investment outlook in simple point form. In other words, a list of lists. So here goes.

Five key things that went wrong in 2018

In 2018 global growth was good, profits were up, inflation was benign and monetary conditions were relatively easy. It should have been good for markets. There were five reasons it wasn’t:

• Fear of the Fed – the Fed didn’t really surprise but investors became increasingly concerned that it would overtighten. This reached a crescendo in late December.

• US dollar strength – a rising US dollar is a defacto global monetary tightening and this weighed particularly on emerging countries and US earnings expectations.

• Geopolitics – President Trump’s trade war hit confidence from March and morphed into fears of a broader Cold War with China. Other worries around Trump (with ongoing turmoil in his team, fears of impeachment as the Mueller inquiry progresses and a return to divided government) along with the populist government in Italy also weighed.

• Global desynchronisation – US growth was strong, but it slowed everywhere else.

• In Australia, tightening credit conditions (with fears of a credit crunch due to the Royal Commission) and falling house prices weighed on banks & growth expectations.

Five lessons from 2018

• Global growth remains fragile with post GFC caution lingering. This and technological change are helping to keep inflation down. Trade war fears didn’t help. Amongst other things this means central banks need to tread carefully in normalising monetary policy.

• Investors continue to find it easy to fear the worst – this has been evident in three major circa 20% sharemarket declines since the GFC – in 2011, 2015-16 and now 2018.

• Geopolitics remains a significant driver of markets and economic conditions.

• Government bonds remain a great diversifier – they rallied when shares plunged.

• Stuff happens – history tells us markets have periodic setbacks. 2018 was just another example.

Five big picture themes for 2019

• Policy pause and stimulus – the turmoil in markets and threat to global growth is likely to drive a policy response early this year with the Fed pausing, China providing more stimulus and the ECB providing cheap bank financing. There may also be some fiscal easing in Europe.

• While global growth is likely to weaken a bit further in the coming months, it’s likely to stabilise and resynchronise as the year progresses helped by policy stimulus, an easing in the $US and by the late 2018 plunge in energy costs.

• Global inflation is likely to remain benign helped by the 2018 growth slowdown and fall in energy costs. In this sense the malaise of 2018 by forestalling inflation and hence monetary tightening has arguably helped extend the economic cycle. The US remains most at risk on the inflation front though given its still tight labour market. 

• But expect volatility to remain high given the lower level of spare capacity in the US and ongoing political risk.

• Australian growth is expected to be sub-par as the housing downturn detracts 1-1.5 percentage points or so off growth.

Key views on markets for 2019

• Global shares could still make new lows early in 2019 (much as occurred in 2016) and volatility is likely to remain high but valuations are now improved and reasonable growth and profits should see a recovery through 2019 helped by more policy stimulus.

• Emerging markets are likely to outperform if the $US is more constrained as we expect.

• After a low early in the year, Australian shares are likely to do okay, recovering to around 6000 or so by year end.

• Low yields are likely to see low returns from bonds, but they continue to provide an excellent portfolio diversifier.

• Unlisted commercial property and infrastructure are likely to see slower returns over the year ahead. This is likely to be particularly the case for Australian retail property.

• National capital city house prices are likely to fall roughly 5% led again by 10% or so price falls in Sydney and Melbourne off the back of tight credit, rising supply, reduced foreign demand & possible tax changes under a Labor Government.

• Cash and bank deposits are likely to provide poor returns as the RBA cuts the official cash rate to 1% by end 2019.

• Beyond any near-term bounce as the Fed moves towards a pause on rate hikes next year, the $A is likely to fall into the $US0.60s as the gap between the RBA’s cash rate and the US Fed Funds rate will still likely push further into negative territory as the RBA moves to cut rates.

Six things to watch

• The US trade war – while it may now be on hold thanks to negotiations with China, Europe and Japan these could go wrong and see it flare up again. US/China tensions generally pose a significant risk for markets.

• US inflation and the Fed – our base case is that US inflation remains around 2% enabling the Fed to pause/go slower, but if it accelerates then it will mean more aggressive tightening, a sharp rebound in bond yields and a much stronger $US which would be bad for emerging markets.

• Global growth indicators – if we are to be right, growth indicators need to stabilise in the next six months.

• Chinese growth – a continued slowing in China would be a major concern for global growth and commodity prices.

• Politics – political risks abound in the US with the Mueller inquiry getting ever closer to President Trump and a return to divided government leading to risks around raising the debt ceiling and Trump adopting more populist policies. In Europe the main risks are around Brexit, Italy and the EU parliamentary elections in May. Australia’s election risks are more interventionist government policy and tax changes.

• The property price downturn in Australia – how deep it gets and whether non-mining investment, infrastructure spending and export earnings are able to offset the drag from housing construction and consumer spending.

Three reasons why global growth is likely to be okay

Global growth indicators are likely to weaken further in the next few months but then stabilise, resulting in okay global growth of around 3.5% this year:

• Global monetary conditions are still easy. While the flattening US yield curve is a concern all other measures of monetary policy show it to be easy – particularly globally.

• Market volatility and associated uncertainty are likely to drive a policy response with the Fed pausing, other central banks easing and possible fiscal stimulus in Europe.

• We still have not seen the excesses – massive debt growth, overinvestment, capacity constraints or excessive inflation – that normally precede recessions.

Three reasons why Chinese growth won’t slow much

• The Chinese Government’s tolerance for a sharp slowing in growth is low given the risk of social instability it may bring. 

• Monetary and fiscal policy is being eased.

• In the absence of much lower savings (the main driver of debt growth), rapid deleveraging would be dangerous, and the Chinese Government knows this.

Four reasons Australia still won’t have a recession

A downturn in the housing cycle and its flow on to consumer spending will detract around 1 to 1.5 percentage points from growth, and growth is likely to be constrained to around 2.5-3%, but recession is still unlikely:

• The growth drag from falling mining investment (which was up to 2 percentage points) has faded.

• Non-mining investment & infrastructure spending are rising.

• Interest rates can still fall further, and the RBA is expected to cut the cash rate to 1%.

• The $A will likely fall further providing a support to growth.

Three reasons why the RBA will cut rates this year

• The housing downturn will constrain growth to at or below potential.

• This will keep underemployment high, wages growth weak and inflation lower for longer.

• The RBA may ultimately want to prevent the decline in house prices getting so deep it threatens financial instability.

Three reasons why a grizzly bear market is unlikely

Shares could still fall further in the short term given various uncertainties resulting in a brief (“gummy”) bear market before recovering. But a deep (or “grizzly”) bear (where shares fall 20% and a year after are a lot lower again) is unlikely:

• A recession is unlikely. Most deep grizzly bear markets are associated with recession.

• Measures of investor sentiment suggest investors are cautious, which is positive from a contrarian perspective.

• The liquidity backdrop for shares is still positive. For example, bank term deposit rates in Australia are around 2% (and likely to fall) compared to a grossed-up dividend yield of around 6% making shares relatively attractive.

Seven things investors should allow for in rough times

Times like the present are stressful for investors. No one likes to see their wealth fall and uncertainty seems very high. I don’t have a perfect crystal ball, so from the point of sensible long-term investing the following points are worth bearing in mind.

• First, periodic sharp setbacks in share markets are healthy and normal. Shares literally climb a wall of worry over many years with periodic setbacks, but with the long-term trend providing higher returns than more stable assets. The setbacks are the price we pay for the higher long-term return from shares.

• Second, selling shares or switching to a more conservative strategy after a major fall just locks in a loss. The best way to guard against selling on the basis of emotion is to adopt a well thought out, long-term investment strategy.

• Third, when growth assets fall they are cheaper and offer higher long-term return prospects. So, the key is to look for opportunities that pullbacks provide. 

• Fourth, while shares may have fallen in value, the dividends from the market haven’t. The income flow you are receiving from a diversified portfolio of shares remains attractive.

• Fifth, shares often bottom at the point of maximum bearishness. So, when everyone is negative and cautious it’s often time to buy.

• Sixth, turn down the noise on financial news. In periods of market turmoil, the flow of negative news reaches fever pitch, which makes it very hard to stick to a well-considered, long-term strategy let alone see the opportunities. 

• Finally, accept that it’s a low nominal return world – low nominal growth and low bond yields and earnings yields mean lower long-term returns. This means that periods of relative high returns like in 2017 are often followed by weaker years.

Source: AMP Capital 15 Jan 2019

Important notes: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

At AMP’s recent Amplify event, Mark Moore, Uber’s engineering director of aviation and Nick Earle from Hyperloop One, spoke about how innovation is likely to change the face of public transport. Emerging public transport systems are poised to free up road and rail systems, leading to less congestion and better use of infrastructure.

As an example, Uber’s vision for the future of commuting involves a self-driving electric car picking up a passenger and taking them to a nearby teleport, from which an unmanned air taxi would take them to their destination teleport, where another Uber car would pick them up and take them to their final destination.

Hyperloop One’s vision is different but likely to be complementary. They envisage ‘packetised transportation’ that can carry both passengers and cargo in a pod which travels at high speed through a tube using magnetic levitation. It’s energy agnostic and has the ability to draw power from various sources including renewable sources such as solar. The target speed is just below the speed of sound, so a Sydney to Melbourne trip could take just 60 minutes.

Both visions will slash trip times and take cars off the road, and also provide new infrastructure investment opportunities.

The future of infrastructure

Any reduction in the number of vehicles on roads will have further flow on effects to related infrastructure and this is a major trend of which infrastructure investors need to be aware. For instance, there will be less need for big CBD parking stations, which may be able to be repurposed, for example as logistics hubs or as electric vehicle charging stations.

These changes may also impact the nature of our cities. They may allow for even larger cities, possibly incorporating several centralised hubs, and larger population densities.

Given competition will be fierce among technology providers, one strategy for infrastructure investors may be to back the facilities and systems needed to support new transport modes.

For example, an electric-vehicle future may require an amplification of renewable generation and distribution capacity. This will require construction of many battery charging or swap stations in major built up areas. This is an opportunity for investors.

Ultimately, it will take time, new regulations and substantial public education to switch to a new model for public transport. While it’s impossible to predict the future, given how gridlocked Australia’s road and rail networks are, it’s only a matter of time before new approaches make practical and economic sense.

Author: John Julian, Investment Director Sydney, Australia

Source: AMP Capital 31 July 2018

Important notes: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.