Insurance In Super?

not-so-super-deal

Most superannuation funds offer life insurance

In fact if you join your employer’s default super fund it is compulsory for a level of life insurance to be provided. Very conveniently for the insurers and super funds, the obligation is for the fund member to ‘opt-out’ if they don’t want the insurance; that is, if you don’t explicitly refuse the cover, you pay for it. That’s why it’s important you read the following….

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,
  • Total and permanent disability (TPD) cover – pays a benefit if you become seriously disabled and are unlikely to ever work again,
  • Income protection (IP) cover – pays an income stream for a specified period if you can’t work due to temporary disability or illness.

There are a number of advantages in having life insurances through your super. These include:

  • It can be cheaper – Super funds purchase insurance policies in bulk. This is known as ‘group life insurance’ where one policy covers multiple people.
  • You get the cover – As the cover is provided automatically there is no form filling or underwriting required,
  • If there are no surplus household funds, you can use your super balance to pay the premiums,
  • If there are surplus household funds, you can salary sacrifice the premiums into super and gain a tax benefit (Only income protection is tax-deductible outside super).

There are however some pretty significant disadvantages though.

Disregarding the fact that there would be many people paying for cover they don’t know about, let alone want, and that you are depleting your superannuation balance, the main ones are:

  • Changing terms and definitions – the product and benefit options can change,
  • Huge, and random, premium increases. Group cover can be more expensive than individual insurance,
  • Lack of portability – If you leave the super fund then the life insurance cover ceases.

The hyperlinks above take you to pages which provide further details on each point made.

If you have a super fund, then you should be reviewing the attached life insurance, ascertaining its appropriateness and comparing the price with alternative providers.

Avant Financial will be pleased to assist you with this.

 

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