Buying Insurance through your super fund has many advantages. So you need to make sure you are getting the right cover for your individual needs. In some cases, you may be paying for nothing.

Most super funds offer life and total and permanent disability (TPD) insurance to fund members. Some super funds also offer income protection cover. Since the introduction of the Protecting your Super reforms in 2019, this cover is no longer automatic.

If you have less than $6,000 in your super account or it has been inactive, then the insurance through your super fund will have been cancelled. This is of course unless you advised the fund otherwise. For example, an account may be deemed inactive if it has not received a contribution for more than 16 months.

In addition, insurance cover is no longer offered to new fund members aged under 25.

Is it right for you?

If you have insurance through your super fund, it’s a good idea to check the cover is right for you. This is particularly the case now that the stapling measure has been introduced as part of the recent Your Future, Your Super legislation.

From November 1, unless you choose a new fund when you change jobs, the first fund you joined will be ‘stapled’ to you throughout your working life. This is where problems can arise. While the fund stays the same, so will the insurance cover.

Most TPD policies within super are for “any” occupation rather than “own” occupation. This three-letter definition can make a world of difference. If you still have the capacity to work in some other occupation, then it is likely your insurance will not payout.ⁱ

Many benefits

There are many benefits from having insurance through your super fund. Firstly, the premiums are generally lower because the fund buys the insurance in bulk. Also, your premium payments are effectively lower as they come out of your pre-tax rather than your post-tax income.

What’s more, you are not having to put your hand in your pocket to pay the premiums. The insurance cover automatically comes out of your super. Of course, the flipside is you will have less money working to build your retirement savings.

So, when it comes to taking out insurance, going through your super has lots of positives.

The downside is that the default level payout may be lower than you might need. You should check if this is the case and maybe consider making additional premium payments to give yourself and your family more appropriate cover. Be aware though that opting for a higher payout could mean you have to undergo a medical.

Also, life insurance cover in super actually reduces over time to the point where your cover reaches zero by the time you are 70. And for TPD cover it ceases at 65.ⁱⁱ

Regular checks

Wherever you get insurance cover, it’s important to remember that its purpose is generally to cover any outstanding debt and ongoing financial obligations should you pass away or become unable to work.

For this reason, it is important to regularly check your insurance within your super to ensure it is sufficient to maintain your lifestyle.

If it falls short, then you might also consider taking out a policy outside super.

While income protection is sometimes available through your super, it may be necessary to look outside. Such policies pay you a regular income for a specified period if you are unable to work through an illness or injury, and premiums are tax-deductible outside super.

When you are leading a busy life with lots of claims on your income, insurance may be seen as an unnecessary expense. When it comes to the crunch, it can play a valuable role in your life when you need it most.

Please call us on 02 6362 8255 to discuss your insurance needs with our Financial Planners Kim Bryant and Andrew Miller. They will be able to see whether your existing cover, both inside super and outside, is sufficient.

i https://moneysmart.gov.au/how-life-insurance-works/total-and-permanent-disability-tpd-insurance

ii https://thenewdaily.com.au/finance/dollars-and-sense/2021/08/02/insurance-life-tpd-superannuation/

Source – Advant Plus

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This website contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. Any advice provided by Thrive Advice detailed above is provided independently of Thrive Plan Pty Ltd and our Licensee GPS Wealth Ltd. Neither Thrive Plan Pty Ltd nor GPS Wealth Ltd take any responsibility for any actions or service they provide.

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