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The reality of insurance, and getting yourself comprehensive coverage for most of life's unplanned situations is that it costs thousands of dollars a year, which for some can be quite unaffordable. So, when it comes to your insurance, it is great to have the option to take out some of your insurance policies through your superannuation, rather than have the premium deducted from your income. The three main types of Insurance that Super funds offer are Life Insurance, TPD and Income Protection Cover. If you're wanting to review your insurance, check what cover is available through your super fund, so you can start comparing policies. Below we have listed some basic Pro's and Con's about insurance through super, which might help in your decision making process.
PRO: If it's an employer chosen super fund it could be cheaper, as they offer discounts for groups.
PRO: If you choose the base level cover, called "default cover", you most likely won't have to complete a medical.
PRO: Insurance premiums are deducted from your super fund. So if you are at the stage of life where you are paying off your mortgage and putting your kids through school, having one bill that is taken care of, may take some stress off your cash- flow.
PRO: Some superannuation funds also include Total and Permanent Disablement (TPD) and Income Protection insurance. Having your insurances bundled may prove to be cheaper.
PRO: If you are worried about the cost of your life insurance premiums affecting your super account balance, you may be able to salary sacrifice your premium costs. For many people this can be quite tax effective.
CON: Most people choose the base level cover, which is generally $100,000 - $200,000. In many cases this would not be enough to cover expenses should an unfortunate situation occur. It is possible however to take out extra or separate cover as well as your insurance through super.
CON: It means having your insurance premiums deducted from your super savings. So when you hit retirement, you will have less to get you by.
CON: You might not be able to guarantee who the beneficiary will be. The trustee of your super fund is usually the decision maker on how to distribute the funds if you were to pass away. If you wish to nominate someone specific, rather than leaving it up to the discretion of the trustee, you may be able to do a binding death nomination. However if you want more certainty as to who will receive your death benefit, insurance through super may not be for you.
CON: As a result of your insurance payouts having to go through your superannuation fund, there may be a delay in your death benefit payout.
CON: In the case that the person receiving the benefit was not financially dependent on you, they may be taxed on the payment they receive. A financial planner or accountant will be able to help guide you through this situation.
CON: Income Protection Insurance outside super can offer cover for a longer period of time. Most Income Protection Insurances through super will only cover about 2 years, if you were unable to work. Insurance outside of super can offer cover for a longer period of time should the situation be more permanent.
If you require further advice on how to manage your funds, and want some guidance around insurance's, contact us today!