In this article we compare the two structures, a separate Priority Protection (PP) Risk-Only policy funded via rollover versus an integrated policy on an existing platform, with the aim of dispelling a few myths and equipping you with the facts.

Firstly, insurance on the platform of an approved partner’s super fund via AIA’s PPPI offer is a fully integrated product solution and is generally portable by Memorandum of Transfer.

The cost of funding the client’s cover tends to be neutral, or equivalent, when comparing the two super ownership structures.  The following table illustrates this point, assuming the ‘headline’ gross premium for the super life cover is $1,000 for the relevant year.

 

 

Care needs to be taken around the ‘notice of intent’ (NOI) eligibility and timeframe requirements. Of particular concern is the rule that invalidates an NOI if the receiving fund no longer holds part or all of the contribution at the time that the NOI is submitted.
 

In a risk-only super environment, once the policy lapses, generally the underlying super account is dissolved as there is no running balance.  This could create problems for clients that have made contributions into a risk-only super account, from which they intend on claiming a personal tax deduction for.  If a super account is dissolved before a valid NOI is submitted and acknowledged by the fund trustee, then any subsequent NOI submission will be invalid and rejected, as the underlying super account to which the notice relates no longer exists.  There is less risk of this occurring within a platform super fund structure where a running super balance exists.

When the enduring rollover strategy is used to fund risk-only insurance, the client is maintaining two super funds. Having more than one super fund necessitates: 
 

Picturea client that has met a condition of release (e.g. attained preservation age / ceasing work after age 60) with a need for $1,000,000 of superannuation life cover . This client then uses his accumulated retirement savings of $1,500,000 to commence an account based pension (ABP) and his wife as the reversionary beneficiary of his ABP.

The following example illustrates the wife’s (age 50) benefit payment options under the two different ownership structures should the trigger event occur in the financial year 2022-23, assuming the value of the ABP at date of death was $1,500,000. As can be seen by the following chart, the Platform structure provides a niche opportunity for the wife to retain more than $1.7m in a death benefit income stream. This would not have otherwise been possible under a risk-only structure.

It is important to consider the various insurance ownership structures so that efficiencies can be garnered not only from a practice management/efficiency perspective, but also estate planning and client outcomes perspective.  

 

If you would like to discuss further, please reach out to your AIA Australia Client Development Manager or Associate. Alternatively, you can contact our Technical team at tece@aia.com.