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gauravinfo · 4 years ago

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The difference between buy now, pay later and credit

INSIGHTS WITH EVALESCO

The difference between buy now, pay later and creditby Kate Ferraro | 18 October 2021

TOPICS DISCUSSED

Repayments

Fees and charges

Joining up

The buy now, pay later (BNPL) market has exploded in Australia over the past couple of years, as new players like Humm and Klarna join more established market favourites like Afterpay, bringing a variety of product offerings, including different maximum balance amounts and repayment schedules. Shops around the country are signing up to make these flexible repayment tools an option for their customers.

So, what does this mean for the consumer, and how does BNPL compare to traditional credit cards?

Repayments

Both BNPL and credit cards allow the purchaser to delay handing over a total purchase amount at the time that they buy a product. Which BNPL product you choose will determine your repayment schedule, both in terms of the minimum necessary instalments and the timeline for making your repayments, such as Afterpay, requiring four repayments every two weeks while Humm allows up to five repayments on a fortnightly basis for purchases under $2,000. Crucially, most BNPL services charge no interest, allowing you to make timely repayments of the total amount at no extra cost.

Credit cards also give you a chance to make your repayments at no extra cost. Most come with an interest free period – on average around 44 or 55 days – meaning that effective management of your repayments can see you swerve any extra charges. However, if you fail to make all of your repayments within this window you’ll be charged interest on what you haven’t paid back. Interestingly, and perhaps inspired by growing consumer trends towards BNPL, a number of credit card providers are now offering 0% interest products – like CommBank’s Neo card.

Fees and charges

There are fees and charges associated with both BNPL services and credit cards. While there’s no formal ‘interest’ on BNPL repayments, providers will charge a late fee if you do not repay what you owe according to the schedule, and these fees can increase with each late repayment or follow-up reminder. In addition to charging interest, credit cards usually come with a sign up fee and an annual fee, although occasionally these will be waived in promotional periods.

Be sure to look into all the fees and charges associated with a financial product before making a commitment.

Joining up

Signing up to BNPL and obtaining a credit card have relatively similar rules. Both require users to be Australian residents over 18 years old, and both reserve the right to perform a credit check to ensure you are equipped to make repayments.

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gauravinfo · 4 years ago

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Time to review your income protection cover?

INSIGHTS WITH EVALESCO

Time to review your income protection cover?by Kate Ferraro | 30 September 2021

TOPICS DISCUSSED

What is income protection?

Major changes to income protection

Impact on existing and new policies

If you’ve owned an individual income protection or salary continuance policy in recent years, you may have seen your premiums increase as insurers struggled to cover their large losses on these products.i

Given the ongoing competition and generous features in some products, the Australian Prudential Regulation Authority (APRA) has decided it’s time for some new rules to ensure income protection cover remains sustainable and affordable for customers.

This will result in sweeping changes to these types of policies from 1 October 2021, so it’s essential to review your insurance protection cover before insurers start altering their product offerings.

What is income protection?

Income protection cover protects your most valuable asset – your ability to earn an income. It acts as a replacement income if you are injured or disabled and will help support your family and current lifestyle while you recover.

What’s more, your premiums are generally tax-deductible, so they can potentially help reduce your tax bill.

Major changes to income protection

Reform of income protection policies started back on 1 April 2020, when insurers were no longer permitted to offer customers Agreed Value income protection policies. Agreed value income protection provided more certainty about the amount you would be paid if you claimed and was based on your best 12 months earnings over a three-year period.

Following this initial change, APRA is implementing further changes from 1 October 2021 that will make new income protection policies much less generous. The reforms mean insurers will be offering new policies that base insurance payments on your annual income at the time you make a claim (or the previous 12 months), not on an agreed earnings amount.ii

For people with a fluctuating income, insurance payments will be based on your average annual earnings over a period appropriate for your occupation and will reflect future earnings lost due to the disability.

To further reduce costs, new policies will no longer offer supplementary benefits like specified injury benefits.

Limits on income payments

Other changes include a requirement for the maximum income replacement payment for the first six months to be capped at 90 per cent of earnings, reducing to 70 per cent after six months.ii If your insured income amount excludes superannuation, the Superannuation Guarantee can be paid in addition to the 90 per cent cap.

One of the most significant changes is that the terms and conditions of an existing income protection policy will no longer be guaranteed until age 65. Policies will no longer be offered for longer than five years, so your policy and its terms will be reviewed every five years.

You won’t need to undergo medical review, but any changes to your occupation, financial circumstances or taking up a dangerous pastime will need to be updated in the policy. Even if your circumstances remain the same, you will still be required to review the policy.

If your policy has a long benefit period, you are also likely to face a tighter definition of disability, rather than the previous definition of simply being unable to perform your ‘normal job’. APRA is keen to ensure claimants who are able to return to some form of paid employment do so, rather than remaining at home and receiving a payment.

Impact on existing and new policies

So what does this mean for you?

If you currently have an income protection policy outside your super, you will not be immediately affected by these changes, but it would be wise to check your policy is still appropriate for your circumstances.

Given the extent of the changes to income protection cover, if you have let your insurance lapse or don’t currently have income protection, it could make sense to consider signing up before 1 October 2021 to take advantage of the more generous current arrangements.

Income protection is often overlooked because of a perception that it’s too costly or not essential, but like all insurance, the cost of not being insured can be far greater. This type of cover offers valuable benefits that should be a key component in your wealth creation – and preservation – strategy.

If you would like help reviewing or selecting appropriate income protection cover, call our office today.

#autralia #finance and corporate affairs minister nirmala sitharaman #financeadwisor

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gauravinfo · 4 years ago

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