Case 2. - TPD cover (Total and permanent disablement cover)

Betty, who is 51 years old, has been employed by XYZ Inc. for 25 years.

Her current income is $206,000, which is expected to be unchanged until her retirement.

She joined the superannuation fund on the starting date of her employment at XYZ, and her

superannuation account balance is $210,000, which is all taxed element now.

She would like to have $800,000 lump-sum benefit in the event of permanent injury that makes her

unable to have a gainful employment and, thus, she has to buy an additional TPD cover to meet her

financial plan.

Betty can buy the TPD cover in the following three alternative ways:

. outside the superannuation fund (ie - from own bank account),

2. through the superannuation fund with concessional contributions, or

3. through the superannuation fund with non-concessional contributions.

As a financial advisor, which option would you recommend?

Justify your advice by providing the pre-tax premium of each option, and in particular, report

how/why your advice will depend on whether the policy within superannuation will be purchased

from concessional contribution or not.

(For simplicity, you can make the following assumptions: first, regarding the tax-payable of TPD

benefits, assume that all taxable components of TPD benefits are taxed elements and consider the

maximum tax-payable in case Betty receives it today; second, the premium of TPD cover is 3% of

the sum insured. If you need any additional assumptions for your analysis, please clearly state them

in your report)