Think HBR

INSURANCE IN SUPER – KNOW YOUR OPTIONS

More than 70% of Australian life insurance policies are currently held inside of superannuation (http://ricewarner.com/insurancethrough-superannuation/).
 
Whether or not this includes you at the moment, it’s worth considering the pros and cons of having your life insurance within your super.
 
Most super funds offer life insurance for their members, but you need to be proactive in managing it to ensure you’re covered for all of your individual needs. For example, the standard level of cover (often offered by default) may not be sufficient to meet the needs of you or your family.
Often (depending on factors like your age and gender) life cover in super is only for $100,000 or $200,000, when in reality you may need closer to $500,000 or $1 million-plus to protect your family, depending on your circumstances.
 
Super funds typically offer three types of insurance for members:
• Death cover (also known as life insurance) - pays a benefit to your beneficiaries when you die, which can also generally be paid in advance if you are diagnosed with a terminal illness
• Total and permanent disability (TPD) cover - pays you a benefit if you become seriously disabled and are unable or unlikely to ever work again
• Income protection (IP) cover - pays you an income stream for a specified period if you can't work or can only work at a reduced capacity, due to temporary disability or illness
 
Often, funds will combine Death cover with TPD cover and provide it as a default in your membership, whereas Income Protection is usually offered as an optional extra. Like other insurance policies, you will pay insurance premiums, but within super they are deducted from your super account balance, rather than from your pocket.
 
The upside
While the insurance offering will vary from fund to fund, including levels of cover and premium amounts, there generally are benefits in getting your life insurance through super:
• It is easy to manage because premiums are automatically deducted from your super account and don’t affect your cashflow
• No medical examinations are usually required for default cover
• It is often cheaper because super funds purchase insurance policies in bulk, and the super fund also receives a tax deduction for the premium payments, which it may return to your account as a tax rebate
• You can usually choose the amount you want to be covered for and can apply to increase, decrease or cancel your cover as needed
• Super funds often offer free online calculators or advice services, to help you work out what insurance cover is right for you
 
What to be aware of
The potential benefits may be significant, but you should also consider the following when working out the options that will suit you best:
• The types of insurance available usually don’t include options like Trauma insurance, and therefore may not meet all of your needs. • If your employer's super contributions stop or you move to a different super fund, your cover may end without notice.
• Tax may be payable on some benefits and there may be tax implications if your beneficiary is not a dependent.
• There can be delays in receiving benefits as the insurer pays the benefit to the fund first, who then distributes it to beneficiaries.
• The cost of insurance premiums are deducted from your super balance, reducing the money available to be invested for your retirement.
 
How much cover do you need?
The amount of cover you need is dependent on your own circumstances as well. A number of factors will need to be considered when deciding on the level of insurance cover you need and includes your life stage (single, married, children), what debts you would like to pay
off, and what additional amount you would like to leave your family to help meet their ongoing living costs.
The simple message is that regardless of your circumstances, getting your insurance arrangements right and reviewing them regularly is important – to ensure you are making the most of the insurance options available through your super.
 
This article was prepared by the team at Nationwide Super, located in Charlestown. Call the team on 1800 025 241 or email enquiries@nationwidesuper.com.au if you would like information on their insurance options.
 
This article contains general information only and has been prepared without taking into account your financial objectives, situation or needs. It may, therefore, not be right for you. Before you make any investment decision, we suggest you consult the relevant Product Disclosure Statement and/or seek licensed financial advice.
Ian Morante Ian Morante

Ian Morante is CEO of Nationwide Super. Ian has over 25 years’ experience in the superannuation industry and holds a Bachelor of Commerce from Newcastle University, a Diploma of Financial Planning, a Diploma of Financial Services (Super), an Advanced Diploma of Financial Services (Super) and is a Fellow of the Australian Institute of Superannuation Trustees.

Other Articles from this issue