Insurance Inside Superannuation

It’s important that you speak with your advisor before deciding whether or not to place your insurance inside superannuation and to check any changes to the rules.  As a brief summary here’s a few pros and cons as to whether you should place insurance inside superannuation or not.

PROS

• Insurance inside superannuation is cheaper because of bulk buying power of funds.
• No medical examinations are required to take out basic cover.
• Super policies often include total and permanent disablement (TPD) and Income Protection.
• It is tax effective since the premiums are paid out of contributions made by your employer or from personal contributions that generate either a direct tax deduction (for the self-employed) or are paid from pre-tax income, in the case of salary sacrifice contributions.
• Premiums can be deducted from super contributions.

CONS

• Cover could be less than you want or need.
• Trauma insurance is not available through your fund.
• Premiums paid from super contributions mean less money available to invest.
• Most income protection policies inside super provide for only 2 years’ worth of income protection.
• You have to be severely disabled to get a payment with TPD.
• There can be delays in life insurance benefits being paid since these initially go to the fund, which then distributes them to the beneficiaries.  Often a lengthy and frustrating process.
• Unless you have the option of making a binding beneficiary nomination, you can’t be certain your life insurance payout will go to the people you want it to.
• Beneficiaries who are not financial dependents will be liable to pay tax on the amount whereas the same benefit paid from a policy held outside super is tax-free no matter who receives it.

It’s always better to have some life insurance rather than none, but it’s wise to know exactly what your insurance will or won’t pay and in what circumstances.  Ask your super fund about the details of your insurance inside superannuation and remember there is nothing to stop you from taking out cover both through your super and independently if that better meets your needs.