Should you buy life, TPD and in­come in­sur­ance through your su­per fund?

Money Magazine Australia - - THE DEBATE -

YES BREN­DAN O’FAR­RELL CEO of In­trust Su­per, win­ner of Money mag­a­zine’s Best-Value In­sur­ance in Su­per award for the past five years.

First, I’ll say that pros and cons ex­ist for hav­ing your in­sur­ances in­side or out­side su­per, and the great thing is you don’t have to have 100% in ei­ther. How­ever, be­cause I’m on one side of the de­bate, I’ll pro­vide three key rea­sons for hold­ing your in­sur­ance cover through your fund.

Easy ac­cess

Most funds pro­vide death, to­tal and per­ma­nent dis­able­ment (TPD) and in­come pro­tec­tion cover. Some funds – and In­trust Su­per is one – also pro­vide cover for mem­bers au­to­mat­i­cally. This helps be­cause you don’t have to re­mem­ber to “opt in”, and there­fore the cover is there if you need it. In con­trast, set­ting up per­sonal in­sur­ance cover out­side su­per can in­volve a lot of pa­per­work and in many cases can re­quire med­i­cal checks to be car­ried out or records to be pro­vided.

Af­ford­abil­ity

Due to the bulk-buy­ing power of a fund, in­sur­ance pre­mi­ums in su­per are usu­ally bet­ter value. Not only are the pre­mi­ums more com­pet­i­tive but they are paid di­rectly from your su­per ac­count.

All the con­tri­bu­tions that make up your bal­ance (su­per guar­an­tee, salary sac­ri­fice, gov­ern­ment co-con­tri­bu­tions and per­sonal con­tri­bu­tions) can help pay for the pre­mi­ums. This means they are not com­ing out of your back pocket and they don’t strain the house­hold bud­get. The pay­ments are also au­to­mat­i­cally de­ducted, mak­ing them much eas­ier to man­age, so it’s less likely the pol­icy will lapse.

Tax treat­ment of pre­mi­ums and ben­e­fits

Death ben­e­fits are gen­er­ally tax free if paid to valid de­pen­dants and TPD ben­e­fits are tax free if the per­son in­sured is over age 60. In ad­di­tion, some su­per funds pass on an in­sur­ance pre­mium tax de­duc­tion to you, which in turn off­sets the su­per con­tri­bu­tion tax, in­creas­ing your su­per net ben­e­fit.

NO ROY AGRANAT Di­rec­tor of Fair­bridge Fi­nan­cial Ser­vices, ad­vis­ing on per­sonal and group ben­e­fits in­sur­ance.

The pur­pose of su­per is to save for re­tire­ment; there­fore, any money spent on in­sur­ance in su­per will re­duce the ul­ti­mate re­tire­ment ac­count. This is be­com­ing a greater is­sue now that the max­i­mum con­ces­sional cap is $25,000 a year.

With the sig­nif­i­cant in­crease in pre­mium rates in re­cent years, par­tic­u­larly for dis­abil­ity cover of­fered un­der su­per­an­nu­a­tion, the per­ceived cheaper cost of cover of­fered by su­per funds in the past is no longer a com­pelling rea­son.

In­sur­ance ben­e­fits con­sist­ing of life, TPD and in­come pro­tec­tion of­fered by a su­per fund are con­di­tional on be­ing a mem­ber of the fund and there is no scope to take over cover in your per­sonal ca­pac­ity should cir­cum­stances change in the fu­ture. Per­sonal poli­cies do not have this re­stric­tion and the in­sured has the flex­i­bil­ity to make changes.

If health changes and there is a de­sire to no longer hold the cover in su­per­an­nu­a­tion, there is usu­ally no op­por­tu­nity to re­tain the cover in your per­sonal ca­pac­ity. A per­son­ally held pol­icy does not have this re­stric­tion.

The re­newal of cover is not guar­an­teed and the su­per fund has the right to ter­mi­nate the pol­icy or change the def­i­ni­tions at any time. A per­sonal pol­icy is guar­an­teed re­new­able and the in­surer can­not change terms and con­di­tions.

In the case of dis­abil­ity, in some cases the su­per fund could re­quire the in­sured to “re-skill”, which means you’re not in­sured for your own oc­cu­pa­tion. This isn’t the case with a per­sonal pol­icy.

The only fund­ing op­tion un­der su­per­an­nu­a­tion is stepped pre­mi­ums, which means the cost of cover in­creases each year as you get older. Per­sonal cover al­lows the in­surer to choose stepped or level pre­mium fund­ing op­tions to as­sist with the longterm man­age­ment of in­sur­ance costs and needs.

Dur­ing times of un­em­ploy­ment, even a short pe­riod, you could find your­self unin­sured if hold­ing dis­abil­ity in­sur­ance in su­per. The con­se­quences can be dev­as­tat­ing if while un­em­ployed you were dis­abled due to sick­ness or in­jury and could never re­turn to work. Per­sonal cover will al­low you to re­main in­sured, in many cases for up to 12 months on your own oc­cu­pa­tion def­i­ni­tion.

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