11 Apr Getting insurance through your super
If you’re thinking about taking out an insurance policy but not sure whether you can afford it, there’s some good news – your superannuation fund may be able to provide you with the cover you need.
In fact, if you’re in your employer’s default fund you may already have some cover, as MySuper default funds are now required to offer a minimum level of insurance to members – including the ability to opt out if you decide you don’t need it. It is always best to review automatic cover to ensure it is appropriate as any default cover you have may not be adequate, or particular policy features may not be suitable for you.
With insurance through super, premiums are automatically deducted from your super balance, making paying for your cover easy and convenient. But when considering whether to opt for insurance through your super fund or any other provider, you need to understand what they actually cover – as every insurance policy is different. There are also additional considerations when deciding whether insurance within super is more appropriate than a standalone policy outside of your super fund.
Cover available through super
Super funds usually offer three different types of insurance. These are:
- Life insurance – providing your beneficiaries with a payout in the event of your death.
- Total and permanent disability cover – giving you a lump sum payout if you are unable to work as a result of a permanent disability.
- Income protection cover – paying you an income for a specific period if you can’t work because of illness or injury.
Pros and cons of insuring through your super
Before you rush to call your super provider, you need to carefully consider the advantages and disadvantages of holding insurance inside super.
- Your premiums are paid from your super account, not from your after-tax income – generally making it tax effective and more affordable than paying premiums from your take home pay.
- It can be much cheaper than buying direct, as large super funds often buy insurance at wholesale rates, which can mean lower premiums for you.
- You can have the peace of mind of knowing that you and your family are covered, even if you can’t afford to pay for insurance directly.
- You may not need a health check to be accepted for a particular level of cover.
- You, or eligible dependant beneficiaries, may elect to receive benefits as concessional tax or possibly even a tax-free income stream, rather than a lump sum, in some circumstances.
- You may be able to make concessional contributions (such as salary sacrificed contributions) to your super fund to help pay the premiums.
- The types and levels of cover available may be limited and may provide less cover than the level you need.
- Life insurance payouts can be delayed, as they go first to the fund before being distributed to your beneficiaries.
- Superannuation law regulates who can receive payouts from death benefits and life insurance proceeds from super policies. This is generally limited to your spouse or de facto partner, children, financial dependants, and people with whom you share an interdependent relationship.
- Tax may be payable on policy proceeds by you or your beneficiaries. You may therefore need to consider increasing the sum insured to make an allowance for tax that may become payable. If you have multiple super funds, you may also have multiple insurance policies – which could mean you’re also paying multiple premiums for the same cover.
- If you hold your insurance as part of a super plan established by your employer, the cover may cease, or become more expensive in the future if you cease working for that particular employer.
Don’t forget to top up
If you decide to take out insurance cover through your super, remember that the premiums will come out of your super fund balance. This means it’s important to consider the need to top up your super on an ongoing basis, or when cash flow allows at some point in the future, so that you’re not eroding your retirement nest egg.
Want to know more?
Insurance is too important to be left to chance. To help you make the right decisions about the type and level of cover you need, speak to us today on 03 8651 6555.
This information has been prepared by MLC Limited (ABN 90 000 000 402, AFSL 230694). Part of the National Australia Group of companies, 105 Miller Street, North Sydney NSW 2060. Any advice in this communication is of a general nature only and has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice in this communication we recommend that you consider whether it is appropriate for your personal circumstances. Any tax estimates are intended as a guide only and are based on our general understanding of taxation laws. They are not intended to be a substitute for specialised taxation advice or a complete assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.