When taking out a life insurance policy you have the option of a standalone policy or taking out a policy through your super fund. Inside or outside of your super fund will depend on your individual situation as both options offer various advantages and disadvantages. As superannuation and life insurance can be complex it’s recommended that you discuss your situation with a Ricarmo Financial Group expert today.
Below we have outlined some of the advantages and disadvantages associated with life insurance inside and outside your superannuation.
In order to make budgeting easier, your insurance premiums may be deducted from your superannuation account so there’s no impact on your after-tax salary or wages.
In most cases when taking out a life insurance policy inside your superannuation no medical tests are required if you have selected the standard level of cover. This can be beneficial if you have a pre-existing condition. If you select a more comprehensive cover, then a medical examination might apply. You should keep in mind that an exclusion period might apply for pre-existing conditions.
Super funds are able to negotiate bulk rates on life insurance premiums due to the number of members within their fund. These savings are often passed directly onto you, resulting in cheaper premiums when you take out a life insurance policy inside your superannuation fund.
Bundled with your insurance policy many superannuation funds also include death, total and permanent disability (TPD) cover and income protection. The bundled policies and bulk discount savings can reduce the cost of insurance to you.
When purchasing life insurance inside your superannuation you have the option to salary sacrifice your premiums. This can be an effective tax strategy as your premiums are taken from your pre-tax income.
The standard or default level of cover offered by your super fund might not be adequate for you. Therefore, it’s essential that you know exactly what you are covered for. You need to consider your death cover, TPD cover and income protection cover. Often the cover inside your superannuation isn’t enough or could stop altogether in some circumstances. It’s important for you to double check your insurance coverage.
When making a claim, payments are not made directly to you. They are paid to the superfund’s trustee which can add another layer of complexity and further delays.. Therefore, it can take a longer period for you to receive the payment, compared to payments from a standalone insurance policy.
A trauma insurance policy offers a lump sum payment to cover your medical expenses as well as your financial needs in case of a severe illness or injury. It isn’t offered as part of your insurance policy when purchased inside your superannuation fund. If the need arises you may be able to use your income protection to cover the financial burden.
When taking your life insurance premiums directly from your super, it leads to a lower balance. Although it does not sound like much, it can have a great impact on your superannuation savings.
Your individual situation will determine the best way to structure your superannuation and life insurance policy. Speak to a Ricarmo Financial Group specialist today. We’re ready to help.