|Is insurance cover in your superannuation fund a good idea?|
|LIFE AND TOTAL AND PERMANENT DISABILITY (TPD) COVERMany super funds provide insurance that pays a lump sum if you die or are disabled to such an extent that you will never be able to work again. There is currently no limit on the amount of death cover that can be paid to dependants. As an example, consider Tony and his wife Sue. He is the only income earner whilst she looks after their three young children. They have a large mortgage. His adviser tells him he needs $2.5 million of life cover so that if he dies the debts will be paid off and his family will have the financial support they need. Having life cover in his super enables Tony to pay the premiums tax effectively. He is on the highest tax rate and by salary sacrificing he is able to pay the premiums with pre-tax dollars. Using super for life insurance may not suit everyone. A death benefit paid to non-dependants will be taxable whereas a lump sum paid by a personal policy will be tax-free. In addition, superannuation policies may lack the flexibility to meet your individual needs and you may not be able to specify in advance who will receive a death benefit paid by the super fund.|
|TEMPORARY DISABILITY INSURANCESome super funds offer a policy that will pay you an income if you are temporarily unable to work due to accident or illness. Alternatively, you can buy a personal income protection policy directly and the premiums are generally tax deductible. Premiums for policies offered through superannuation might not impact on your current budgeting but, as always when buying any type of insurance, the most important issue is to have a policy that will pay out if you have a claim. It’s important to remember that any lump sum payments paid from a TPD policy held within a super fund cannot be made to the beneficiary unless and until that person satisfies a condition of release as defined in the legislation. This virtually rules out the use of ‘own occupation’ TPD policies within super. As from 1 July 2019, if a super fund hasn’t received any contributions for at least 16 months, any insurance held in the fund may be cancelled. You will need to advise your fund if you wish to continue to hold the insurance.|
Under the ‘My Super’ arrangements, default super accounts for employees
who have not exercised a choice of fund must include a minimum level of
Life and TPD cover on an opt-out basis.
One of the advantages of holding life cover through superannuation is that
the premiums are deducted from your super account.
This blog has been written and published by Insight Investment Services.
CB Wealth Australia Pty Ltd T/as HH Wealth is a Corporate Authorised Representative No. 001283595 and Christopher Holme is an Authorised Representative No. 001004793 of Insight Investment Services Pty Ltd AFSL no 309996. Financial Services Guide (FSG) and Adviser Profile contains important information about Insight Investment Services Pty. Ltd., any authorisations and the services we provide. The following link will take you to an electronic copy of the FSG, if you would prefer to receive it another way please contact our office. Please click here to read the FSG– www.insightinvestmentservices.com.au/financial-services-guide/.
This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision.