Super Insurance Restrictions
It is an unchallenged belief of many Australians, that they do not need any stand alone insurance, as their super fund covers all their Life, TPD and income protection needs. While Insurance in super is cheaper, it often comes with a lot of conditions and very limited benefits. You typically get unitised cover based on age, income and profesion, and it is usually only for $100,000 or $500,000 when in reality you may need closer to $750,000 to $1 million to protect you and your family. So here are some considerations for super life insurance cover arrangments
Advantages of Insurance in Super
- No medical examinations are required to take out basic cover.
- Super policies often include total and permanent disablement (TPD) and Income Protection.
- Premiums can be deducted from super contributions
Disadvantages of relying on Insurance in Super
- Cover could be less than you want or need.
- You will need to meet a condition of release to access the benefits (i.e.) retired and of pension age.
- You cannot claim a tax deduction personally
- As the premiums are paid from your super, income protection( SCI) premiums erode retirement savings
Most Australians are unaware that insurance premiums in super are in the most part, funded by their employer super contributions ( 9.5% SGC) which is the mandatory amount paid by employer. Insurance in super has limited benefits, such as a maximum cover amount without medical assessment and the inability to claim your benefit for , Salary continuance (income protection) cover as you need to meet a condition of release in super such as being fully retired or totally incapacitated or due to hardship, to access these insurance benefits. Structuring your insurance to suit your needs, so it is cost effective, it pays when you need it most and is tax deductible, are some of the benefits of getting advice on your insurance cover needs. Salary continuance insurance is classic example of an insurance cover that has very little benefit when held in a super fund, as salary continuance insurance is only paid when you are sick or injured. Now if you are under the age of 60 and need to claim on your salary continuance, you will not be able to withdraw the benefit amount from your super as you will not be able to qualify under the allowable SIS Act conditions of release in super.
It must be said that group insurance in super funds ( retail & industry)Provide a valuable service for many middle to low income Australians who cannot afford to obtain independent cover and their insurance is typically subsidized, however it must be said that the payout ratio’s for group super insurance cover and particularly insurance held with industry funds is alarmingly low.