Di you know that over 70% of Australians hold life cover through their superannuation fund? Before investing in various types of cover it’s worth looking at what sort of total and permanent disability, income protection, or other policies made available through your super fund, and compare that policy against purpose policies made available on the market. The information on policies should be made available through the applicable Product Disclosure Statement (PDS).
Insurance Made Available through Super
The type of cover, the payouts, and the conditions of various policy differ from one policy to another, all disclosed in their PDS. However, the most typical insurance provided through your super include the following:
- Life Insurance cover, also known as Life Cover or Death Cover is a sum paid to your beneficiaries should you die or suffer from a terminal illness.
- Total or Permanent Disability (TPD) insurance pays out a claim if you should become seriously disabled and unable to work.
- Income Protection Insurance, or salary continuance cover, is designed to provide you with ongoing income support for a certain time period, or until a certain age, if you cannot work as a result of temporary disability or illness.
Many super funds include Life Cover and Total Permanent and Disability Cover, but they’re usually far more restrictive than dedicated policies. Many providers will also provide limited Income Protection insurance. Most of this cover is provide without a medical check, although the level of cover, and the requirements, will vary from policy to policy.
TPD insurance in Super usually terminates at age 65, and Life cover will usually end at 70. Cover is not normally provided by those under 25 unless specifically requested, or to those in high-risk occupations. Refer to the PDS or talk to a qualified professional for guidance.
The inclusion of these various Super benefits are normally predicated on having an active super account, or one that you have ‘regularly’ made contributions to in the last 16 months (as required by Law).
Benefits and Drawbacks of Super Life Insurance
Super Insurance Benefits
- Less Expensive Premiums. Premiums are often less expensive as the policy provider will usually purchase policies in bulk. However, as we’ll come to point out, this also means that each policy is generic and does not necessarily suit your circumstances.
- Easy to pay. Insurance premiums are automatically deducted from your super balance. This may limit your final super payout over a number of years.
- No medical. Many super funds will accept you for a default level of cover without health checks. This can be useful if you work in a high-risk job or have health conditions that potentially makes it difficult to get insurance outside super. However, many policies exclude known or pre-existing health conditions.
- Increased cover. You can usually increase the amount of cover you have above the default level. But you’ll generally have to answer questions about your medical history and do a medical check.
- Tax-effective payments. An employer’s super contributions and salary sacrifice contributions are taxed at 15%… lower than the marginal tax rate for most people. This may make paying for insurance through super tax-effective (please talk to us for more information).
Super Insurance Disadvantages
- Limited Cover. A superannuation fund is designed for Super, so it is unlikely to include the scope of cover offered by a purpose-tailed product outside of Super. The super product is generic and a range of conditions and exclusions are likely to apply.
- Conditional Policy Cover. Cover is predicated on an active policy with regular contributions. If the Super policy is left dormant, or isn’t used, the cover will also cease.
- Reduces Your Super Balance. For those that take their super contributions seriously, rolling in cover or additional cover through a Super fund will reduce your Super balance, thus reducing the payout at retirement.
A quick discussion with one of our qualified financial advisers will be more than happy to have a discussion with you; call us on 0410413196.