Obtaining personal insurance within superannuation can offer several advantages, making it an important option for individuals seeking financial protection. Here are the key reasons:
Tailored Coverage
Customisable Policies: Retail insurance allows you to select the level of cover, type of benefits, and specific features that align with your personal needs and circumstances.
Medical Underwriting: While this involves health assessments, it can result in a policy that better suits your needs and may exclude fewer conditions compared to group insurance. Providing full disclosure and medical underwriting to the insurer will eliminate the chances of claim denial.
Affordability
Premiums Paid from Super Contributions: Premiums are deducted directly from your superannuation account, meaning there’s no immediate out-of-pocket cost.
Budget-Friendly: This arrangement allows individuals to maintain insurance cover even when cash flow is limited.
Enhanced Benefits and Definitions
Broader Coverage: Retail policies often include better definitions for Total and Permanent Disability (TPD) and more comprehensive options for Life and Income Protection insurance compared to default super fund insurance.
Own Occupation TPD Cover: Retail insurance may offer “own occupation” cover, which pays a benefit if you’re unable to perform the duties of your current job, providing stronger protection.
Partial Disability Benefits: Income Protection policies in retail insurance often include additional benefits for partial disability or rehabilitation.
Tax Advantages
Tax-Effective Premium Payments: Super contributions are taxed at 15%, which is often lower than the individual’s marginal tax rate. This can make funding insurance through super more tax-efficient compared to paying premiums directly.
Premium Options
Level Premiums: Retail policies allow you to choose level premiums, which remain constant over time, avoiding significant increases as you age.
Stepped Premiums: Stepped premiums, also known as rate for age, are a great cost-effective way to get started with life insurance. It is very important to understand that Stepped Premiums do increase with your age, but usually start cheaper than Level Premiums.
Cost-Effective for Long-Term Cover: While retail premiums may initially be higher than group cover, they can be more cost-effective in the long term if level premiums are chosen.
Financial Security for Dependents
Life Insurance Benefits: Life insurance within super can provide a lump sum to dependents in case of death, ensuring they are financially supported for expenses such as living costs, education, or mortgage repayments.
TPD Benefits: Total and Permanent Disability insurance can provide financial support for medical costs, rehabilitation, or ongoing living expenses if you’re unable to work due to a permanent disability.
Income Protection Benefits: This provides a temporary income stream if you’re unable to work due to illness or injury, helping cover day-to-day expenses.
Estate Planning Benefits
Nominated Beneficiaries: Super funds allow you to nominate beneficiaries, which can streamline the payment of insurance benefits in the event of your passing.
Continuity of Cover
No Automatic Cancellation: Retail policies are less likely to be automatically cancelled due to low super balances or inactive accounts, unlike default group insurance in some super funds.
Claims Assistance
Dedicated Support: Retail insurers typically provide personalised claims assistance, ensuring smoother and more transparent processing compared to group cover claims.
Coverage for Complex Needs
Retail insurance is ideal for individuals with specific or complex insurance needs, such as higher income earners or those with unique occupational risks, as it can be tailored to cover these requirements comprehensively.
Considerations
While obtaining insurance through super has benefits, it’s important to consider potential limitations:
Policy Restrictions: TPD insurance within super typically covers only “any occupation,” which may offer less comprehensive protection compared to "own occupation" cover.
Impact on Super Balance: Premiums reduce your super balance, which may impact your retirement savings.
Claiming Conditions: Access to benefits may depend on satisfying both the insurance claim conditions and the superannuation release conditions (e.g., death, permanent incapacity).