Deciding if you’ve got enough cover, the right types of cover or deciding whether to hold insurance inside or outside super, can seem complicated.
So to help you with this process, we’ve identified some key things you may want to consider when it comes to your insurance when it’s held inside super.
Whether or not holding insurance inside super is beneficial really comes down to what is best for you, based on your own personal circumstances.
If you have dependants
If you have a family, you may want to consider how they would cope, and the amount of money they would need to get by, if you were not able to work, either temporarily or permanently or you passed away. Having personal life insurance may provide you or your family with financial protection in one of these circumstances.
If you don’t have dependants
If you don’t have anyone financially depending on you, you may be under the impression that you don’t need personal insurance, but it’s not always the case. There are other financial commitments which could make it worth considering.
For example, if you become ill or you are injured for an extended period of time and are unable to work, you’ll still need to meet day-to-day expenses. Having Income Protection may therefore help you in covering a portion of your income.
There are three main types of insurance available inside super. These are:
Death or Term Life insurance
This type of cover is designed to provide your family, or any nominated beneficiaries with a sum of money/regular income stream if you were to pass away. It also provides a benefit if you are diagnosed with a terminal illness.
Total and Permanent Disability (TPD) based on any occupation
This cover is intended to pay you a benefit to help cover living expenses or repay debt if you become permanently disabled which prevents you from being able to ever work again in any occupation that you are suited to by education, training or experience.
Income Protection (IP)
If you’re unable to work for a temporary period of time because you’re unwell or have a disability, IP pays you an income stream intended to cover your living expenses for a specific time period. This may be beneficial if you’re self-employed, have a family or have debts like a mortgage.
Other types of insurance outside super
It is possible that your insurance in super is not sufficient for your needs. If this the case, check with your fund to see if you can apply for extra cover.
Alternatively, consider an insurance policy outside your super as you’ll have access to additional types of insurance, such as:
Trauma insurance (also known as Living Insurance)
Trauma insurance is designed to pay you a sum of money if you are diagnosed with a potentially critical illness, or experience some kind of trauma.
One of the major advantages of this type of cover is that you will generally be exempt from paying capital gains tax if you hold the insurance personally. There are also no restrictions as to how you decide to use the money but there are drawbacks. This includes being required to have the policy in place for a set period of time to make a claim.
Total and Permanent Disability (TPD) based on your own occupation
This cover is intended to pay you a benefit to help cover living expenses or repay debt if you become permanently disabled which prevents you from being able to ever work again in your usual occupation.
There’s also private health insurance which may help to cover hospital or medical bills that’s not covered by Medicare. In many cases, insurers enable you to select the type of health and medical services you want as part of your policy.
One of the most important things about insurance in super is making sure you have the appropriate amount of cover for your needs – you may have too much or not enough. There are insurance calculators which can help to make this an easier process.
When you’re considering the amount of cover, the types of things to take into account include:
Speaking to a financial adviser, or your super fund, is also worth considering as they can recommend varying types of policies that could work best for you.
Review your cover regularly
Unfortunately, it’s not enough to put your life insurance policy into a drawer and forget about it. As soon as your circumstances change, consider how this may impact your level of cover as it may need adjusting.
One of the advantages of having insurance in super is that it is sometimes cheaper than being insured outside of super1. This is because super funds can negotiate group discounts based on the volume of their membership. Your premiums may also be able to be deducted directly from your super account rather than a bank account and it may be more tax effective as well.
However, you may find more competitively priced policies outside super particularly if you are young and in good health, so it’s worth investigating.
Bottom line: when deciding if having insurance in super is a good move, it really comes down to being clear about your own circumstances and what’s best for you.
This article was prepared by BT, a part of Westpac Banking Corporation ABN 33 007 457 141, AFSL and Australian Credit Licence 233714. This information is current as at 20 June 2019.
This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. It does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to these factors before acting on it. This information may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. BT cannot give tax advice. Any tax considerations outlined in this article are general statements, based on an interpretation of the current tax law, and do not constitute tax advice. The tax implications of investing in property, shares or superannuation can impact individual situations differently and you should seek specific advice from a registered tax agent or registered tax (financial adviser).
Superannuation is a means of saving for retirement, which is, in part, compulsory. The government has placed restrictions on when you can access your investment held in superannuation. The Government has set caps on the amount of money that you can add to superannuation each year on both a concessional and non-concessional tax basis. There will be tax consequences if you breach these caps. For more detail, speak with a financial adviser or visit the ATO website.