How Does Insurance in Super Work? Let’s Examine

Superannuation (super) puts money away now, for your retirement, later.

While plenty of people are eager to review their super fund performance, less are likely to examine what insurance they hold through their super fund.

According to Australian Securities & Investments (ASIC), Senior Executive Leader, Jane Eccleston, many Australians aren’t even aware they hold insurance through their super.

And with nearly 10 million superannuation accounts including insurance, that’s a lot of people not in the know. Let’s end this.

How does insurance in super work? Find out with the Gold Coast financial planning team at Crest Wealth.

What to consider about insurance through super

When it comes to insurance through super, it’s important to remember that you’re paying for it from your super account. Thus, reducing your super balance.

If you have multiple super funds, it’s likely that you’re paying (perhaps unknowingly) multiple insurance premiums.

Tailored insurance centred on your circumstances may be more suitable than the default insurance offered by most super funds. More on automatic insurance cover, now:

Insurance in super

Did you know that most super funds will automatically provide two types of insurance?

These are:

• Life cover (which pays out a lump sum if you die or have a terminal illness)
• Total and permanent disability (TPD) insurance (which pays out a lump sum if you become totally or permanently disabled and are unlikely to work again)

There is a third type of insurance that is less frequently automatically offered by some super funds to their members – income protection.  This type of insurance pays a percentage of your income for a set period if you are unable to work for due to illness or injury.

The pros and cons under the microscope

Let’s explore, with Crest Wealth financial advisors, the pros and cons of seeking insurance through super.

Pros:

• If your cash flow is tight, paying premiums from your super balance may be an attractive option.
• Often, health checks aren’t necessary for the default level of cover. This can be beneficial for people with health conditions.
• Additional insurance can be applied for with full underwriting.
• Your super balance doesn’t automatically form part of your estate. This means the super fund trustee can pay out your super balance (including life insurance payouts) directly to one or several of your financial dependants in accordance with your Binding Death Benefit Nomination (if you have one). This can be beneficial for people with complex family relationships. It’s important to consider these issues and get appropriate advice about how Binding Death Benefit Nominations work, and if you need one. Needless to say, if you don’t get your Binding Death Benefit Nomination right, this pro can quickly turn into a con.

Cons:

• If you don’t pay attention to your super, your cover could end without you knowing. For example, if you start a new job and contributions go to a different super fund, or your account becomes inactive. These issues can be avoided if you devote time to reviewing your super fund periodically.
• As the premiums are paid from your super balance, you may have less money in retirement (unless you are topping up your fund with additional contributions to cover the premiums).
• You may require more insurance than a super fund can provide. This may be the case for parents who would like to provide for their young children in the event of an untimely death, injury or illness.
• Claims can take longer. Provided a claim is successful, the insurer will pay the benefit to the super fund. The super fund trustee then needs to be satisfied a condition of release is met before proceeds are paid out.
• If death benefits are paid to someone who isn’t considered a financial dependant, they could be subject to tax.

Summarising the finer details

Anyone can apply for insurance from their super fund, so long as their super fund offers it, and deems them eligible.

Given the pros and cons of insurance in super, many people may find having a combination works best by:

• Holding some insurance cover in super &
• Holding some insurance cover directly

Crest Wealth are the trusted experts in financial planning on the Gold Coast.

We’re here to help you realise your financial possibilities and maximise your super for a comfortable retirement.

Need an experienced Gold Coast financial advisor?

Contact Crest Wealth today to understand your current financial situation and implement efficient strategies to enhance your finances for the future.

Disclaimer: The information contained in this news post is general in nature and is intended to provide a general summary only and should not be relied on as a substitute for professional advice.