Insurance through super: is it right for you?
Taking out insurance through a super fund can be a great option for some members, but it does also come with some pitfalls.
Most super funds provide their members with insurance options and an option to increase, decrease or cancel your default insurance cover. There are many benefits of taking out insurance through super, which include:
– the ability to purchase policies in bulk
– not having to pay for premiums with your take-home income
– the convenience of having your policy managed for you
– most policies in super tend to be pre-approved, meaning there is no need for interviews or medical check-ups
– life insurance inside super is deductible to the fund at 15 per cent annually; whereas life insurance premiums held outside of super are not tax deductible.
However, there are some pitfalls of holding insurance through your super, including:
– there is generally a limit on the payout that can be received from an insurance policy purchased by a super fund. In public funds, it is usually between $100,000 and $200,000. For some people, this amount may be more than enough. However, if you have dependents and a mortgage, it may be insufficient to look after your loved ones should something happen to you.
– the types of insurance and levels of cover are limited
– typically insurance cover rises after reaching 50 years – taking a large chunk of contributions
– life insurance coverage ends when you reach a certain age (usually 65 or 70); policies outside of super may cover you for longer
Anyone using a super fund to provide insurance should ensure that they have an appropriate death benefit nomination in place that specifies who their super will go to in the event of their death. If you nominate a non-tax dependent as the beneficiary then they might end up with a hefty tax bill in the event of a lump sum payout (whereas, life insurance payouts outside of super tend to be tax-free).