News & Information
Insurance – Inside or Outside Super?
When looking at obtaining insurance there are always a number of questions that come up such as, what type of cover do I want? How much cover do I want? Do I want my cover to be held inside or outside of super? These are all important questions to ask when considering insurance cover. You want to make sure the insurance that you end up with is not only budget friendly but that it is the right amount of cover for you.
The three types of cover offered within super are:
Death Cover (also known as life cover) - insures your life and pays out a benefit to your beneficiaries upon your passing.
Total and Permanent Disability (TPD) Cover- pays out a lump sum benefit if you become seriously injured or mentally ill and are unlikely to ever work again.
Income Protection (IP) Cover – provides an income replacement of up to 75% of your regular income and pays a benefit for a specified amount of time if you are unable to work due to temporary illness or injury.
The last major type of insurance cover is Trauma Cover. This is the only insurance cover that is not offered through superannuation. Trauma Cover will pay out a benefit if you are diagnosed with a specified illness or injury that impacts your life; this may include but is not limited to, cancer or a stroke.
There are a few upsides of getting insurance cover through your superannuation, but that doesn’t mean there aren’t a few downsides as well.
What are the upsides of insurance through super?
- It is often cheaper as super funds purchase insurance policies in bulk
- You can get the cover you need for you and your family even if money is tight
- It’s often easier to manage as the premiums are automatically deducted from your super balance
- Some funds may accept you for cover without having to undergo a medical examination
- If you’re in an employer sponsored plans you will be paying your premiums at a reduced rate
- You are usually able to choose the amount of cover you want
- There may be tax benefits as you pay for cover out of your pre-tax super contributions
What are the downsides of insurance through super?
- The types of insurances and level of cover may be limited, as mentioned Trauma is not available through super
- Paying insurance premiums from your super could decrease your super balance, leaving you with less money for retirement, especially if the deductions aren’t being offset with contributions
- The insurance is not portable, so if you change funds you may end up without cover
- There can be delays in receiving benefits as the insurer pays the funds to the super fund first
- If you do not nominate a binding beneficiary or if your fund does not one offer a binding beneficiary the super trustee will decide who gets your benefits upon your death, they will consider your nomination however.
- Life cover usually ends around age 65, where policies held outside super usually cover you for longer
- There may be tax payable on some benefits, especially if your beneficiary is not a dependant
So, as you can see there are a lot of things to think about when considering insurance. As with any financial decisions choosing insurance is another decision best paired with advice from professional financial adviser. The decision you make today could impact the rest of your life.