Having the right life insurance in place is important for your financial peace of mind. Knowing what is on offer through your super will help you find the cover that works for you.
What is life insurance through super?
Life insurance through super can refer to death cover, income protection insurance or total permanent disability (TPD) insurance. Depending on the type of cover, some will pay a lump sum to your loved ones if you die or are diagnosed with a terminal illness. Others will provide you and your dependents with monthly payments if you are unable to work for an extended time due to illness or injury. Many super funds offer life insurance to their members. The cover is generally included in your fund membership, and the premiums are deducted from your super balance.
Finding out what type and level of cover you have through your super will help you to determine whether you need to take out an additional policy to meet your and your family’s needs. Generally, the cover will depend on the type of fund you have:
1. Employer super fund
It’s compulsory for all employer super funds to provide members with some form of Death and TPD cover. So if your employer is paying super contributions into a super fund on your behalf, then it’s likely you will already have some insurance, but you should check with your super fund including how much cover is in your super fund. Many funds will also offer income protection.
2. Self managed super fund (SMSF)
The difference between a SMSF and other types of super funds is that, generally, as a member of a SMSF, you are also the trustee. This means you are running an SMSF for your own benefit.
Recent changes to Superannuation Industry Supervision (SIS) Regulations mean that SMSF trustees must now also consider the life insurance needs of SMSF members.
3. Super platform partners
There are a number of companies that partner with super funds to allow you to select a product that provides the benefits of insurance through super without the need for an investment component.
Types of life insurance in superannuation
Typically, super funds offer three important types of insurance cover:
Income Protection: This provides an income stream for a specified period if you can’t work due to temporary disability or illness.
Total and Permanent Disability (TPD) Insurance: This provides a lump sum benefit if you become seriously disabled and are unable to ever work again.
Life Insurance: This provides your beneficiaries with a lump sum benefit if you die.
Potential advantages of life insurance through super
Purchasing insurance through your super allows you to take advantage of a number of benefits:
Possible tax benefits: Depending on your circumstances, life insurance through super can be a tax efficient option.
Preserve disposable income: With premiums paid directly from the balance of your super fund your day-to-day cash flow is unaffected.
Access tax concessions: If eligible, you can claim a tax deduction on certain super contributions to fund insurance premiums.
Cheaper insurance: Generally, insurance purchased through super is cheaper due to volume discounts provided to the superannuation funds. However, the level of cover you receive is often lower than under a separate insurance policy. You may be able to increase this by getting in touch with your super fund.
No medical examination: Generally super funds do not require a health check for the entry-level insurance offered. However, it is likely you will need to provide more information if you wish to increase your level of cover.
Potential disadvantages of insurance life through superannuation
Buying insurance through super may seem like the perfect solution, but there are some things you should consider first:
The type and level of cover through super can be limited. It’s important you and your financial adviser (if you have one) assess the options and decide the right cover for your situation.
Keep track of your insurances through super. If you have more than one super fund you may be paying for more than one policy. Cover can come to an end if you change super funds.
Not all benefits are tax-free. Tax may be payable on some benefits, depending on who receives the benefit and when it is paid out. For example, If your beneficiary is not a dependant, there may be tax implications.
Benefits are paid to a trustee. They will then distribute onto you or your beneficiaries.
Premiums are taken from your super contributions. This may affect your retirement balance when the time comes.
Consider your beneficiaries. If you do not make a binding beneficiary nomination, or your fund does not offer binding nominations, the super trustee will decide who receives your benefits when you die. Usually benefits are paid to dependents, after taking your wishes into consideration but this is a decision of the trustee.
Life insurance through super vs direct life insurance
When deciding whether to stick with your insurance through super or invest in further direct life insurance, there are a few key things to consider:
What type of cover do you need?
What level of cover do you need?
What budget do you have for insurance?
What pre-existing conditions do you have?
Why getting life insurance directly through an insurer could be a good option
Direct life insurance ensures that the level of cover you get suits your, and your beneficiaries’ needs. You can put together a combination of death cover, TPD, critical illness (not available via superannuation) and income protection insurance depending on your circumstances, and can make decisions about how you’d like to pay premiums and how long your cover will last.
By setting up insurance policies that suit your situation, you can rest easy in the knowledge that should anything happen, you and your loved ones are financially secure. You should always check the Product Disclosure Statement (PDS) before selecting your insurance.
A financial adviser can help
A financial adviser can help you understand all the pros and cons of insuring through super and help you build a solution that works for you. If you would like to explore life insurance options, you can use TAL’s Coverbuilder to put together a solution that suits your needs.
Any financial product advice is general in nature only and does not take into account any person’s objectives, financial situation or needs. Before acting on it, the appropriateness of the advice for any person should be considered, having regard to those factors. Persons deciding whether to acquire or continue to hold life insurance issued by TAL should consider the relevant Product Disclosure Statement (PDS). The Target Market Determination (TMD) for the product (where applicable) is also available. Life insurance issued by TAL Life Limited ABN 70 050 109 450 AFSL 237848.