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Maximising your benefits
Life insurance can give you peace of mind that what you have created in life is financially protected. It can help you and your family when something goes wrong to maintain your obligations and still achieve your dreams.
Benefits of insurance via superannuation
Purchasing insurance through your super allows you to take advantage of a number of financial benefits:
- Pay premiums with pre-tax earnings
Employer contributions into a super fund are paid with pre-tax dollars, so any insurance premium you pay from your super fund can be tax-effective.
- 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 deductions on super contributions to fund insurance premiums.
What type of insurance can you access through super?
Through super, you have access to three important types of insurance cover:
- Income Protection which provides an income stream for a specified period if you can’t work due to temporary disability or illness.
- Total and Permanent Disability (TPD) which provides a lump sum benefit if you become seriously disabled and are unable to ever work again.
- Life Insurance provides your beneficiaries with a lump sum benefit if you die.
How can you access these benefits?
- 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. Many funds will also offer Income Protection.
- 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, means that SMSF trustees must now also consider the life insurance needs of those SMSF members.
- 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.
Other benefits of life insurance via super:
- Lower premiums
Super funds generally offer lower premiums than retail or direct insurance because they can purchase insurance policies wholesale.
- Automatic acceptance
Most funds offer a level of automatic cover without you having to go through a lengthy underwriting process.
Some super funds allow you to access insurance policies through a group or retail offer, so you can choose a solution that suits you best.
What else should you consider?
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.
- 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. If your beneficiary is not a dependant, there may be tax implications.
- There can be delays in benefit payment
Insurers will pay the benefit to your fund’s Trustee, who will then distribute onto you or your beneficiaries.
- 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.
- 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.