If you’re organising personal insurance, such as life and income protection cover, you might be considering buying it through your super fund.
Many Australians have become aware of the benefits associated with owning personal insurance using this method, but if you don’t have a solid understanding of how it works you will fail to get the most out of it.
Our financial advisors can help you decide whether purchasing insurance through your super fund is the right choice for you, your partner or your family and help you maximise the benefits.
In some cases, this might not be the best path and we will advise you on a more suitable option for your particular circumstances and needs.
Benefits Of Insurance Through Your Super
The main benefits of owning personal insurance through your super fund include:
- Cash flow – rather than taking money from your bank account, the premium for your insurance is deducted from your superannuation account
- Tax-effective – premiums can be paid with pre-tax dollars if you are able to salary sacrifice super contributions
- Automatic acceptance – some insurers offer automatic acceptance through your super fund
Stepped vs Level Premiums
When you are organising your personal insurance it is important to understand the difference between stepped and level premiums. In Australia, the majority of people hold stepped premiums.
This type of premium is recalculated annually and generally increases as you get older and are more likely to become ill or injured.
At My Wealth Solutions, we use superannuation facilities that allow you to have level premiums so you don’t have to pay more each year. This gives you financial security and, although you pay more at the start, saves you money in the long run.
You know in advance that you can afford your insurance in the future because the premium won’t increase.
Frequently Asked Questions
Will my super savings be impacted?
If you are not making regular tax-effective contributions into your super fund, the cost of insurance premiums may erode your super over time.
Will my tax position be impacted?
Your decision to hold insurance inside or outside of super may depend on your tax position. As the super environment is tax-effective, you may be able to put strategies in place that will help pay insurance premiums and improve your overall tax position. However, the cost of Income Protection cover held outside of super is tax-deductible. It may be worthwhile speaking to us about what the best strategy is for your own situation.
How will insurance benefits be paid?
If you make a successful insurance claim through a policy held through your super fund, the insurer will pay your benefits to the super fund’s trustee. As super funds have different rules and restrictions, it’s worthwhile checking with your fund as to how any insurance benefits would be paid to you or your beneficiaries from the trustee. Different policies may also have different restrictions.
Who will receive my life insurance benefits and inherit my super?
Under superannuation law, if you die, your super balance and any life insurance benefits can generally be paid to your estate or certain individuals only, such as a spouse or someone who is financially dependent on you. You must nominate this person through your super fund provider. As your super benefits could be worth a significant part of your estate, it’s worth reviewing your nomination every three years to ensure it’s still up to date.
Can I hold insurance through my DIY super fund?
Holding insurance though your DIY super fund is possible and can play a key role in your estate planning arrangements. Due to the complex regulations surrounding DIY funds, professional advice will help here.
We can review your overall financial situation, commitments and lifestyle to help you decide on an adequate level of insurance cove and whether to hold insurance inside super, outside super or to hold a combination of both.