Insuring Inside Or Outside Super

Types of Insurance

Many super funds offer three basic forms of personal insurance. These are life, Total and Permanent Disability (TPD) and income protection. Other types of insurance like trauma cover generally can’t be held within super.

Outside super, you can mix and match types of cover. Policies can sometimes be packaged up with one provider to reduce your premiums, which could otherwise be more expensive outside the super environment.

Levels of Insurance

Automatic, and typically low, levels of life and TPD cover within a super fund can be fine for a young person starting their first job. But if you’re at another life stage – with a partner, children and a mortgage, for instance – it can be a different story.

Insurers providing cover within super can put caps on the levels of cover available, so be sure to check with your fund. Outside super the levels of cover can be more flexible, but your options may also depend on your age and health.

Medical Check-Ups

Super fund members who are offered automatic cover often don’t need a medical check-up to get insured. Instead, your fund spreads the risk among its many members.

At the same time, while it can be possible to find cheaper premiums outside super, considerations such as age, health and lifestyle matter. As insurance is offered on a case-by-case basis, some people may face higher premiums – but they may also have more cover options.

Policy Customisation

Insurance options through super may be less flexible, as super laws restrict policy definitions and the ability to customise policies. Automatic covers usually require little, if any, consultation with the fund member, which may or may not suit your needs.

Policies outside super begin with a customisation process. This can be important if you need specific levels of cover. It’s also useful if you want certainty around how, when and to whom payments are made if you make a claim.

Tax Considerations

For most super fund members, it can be difficult to beat the tax effectiveness of paying your personal insurance premiums through your super. However, life insurance benefits can be subject to tax if paid to a non-dependant for tax purposes, such as an adult child, while other insurance benefits paid from super may also be taxable.

Premiums are often made from your pre-tax contributions – for example, from your employer’s compulsory super payments or extra contributions you make through salary sacrificing. This means your premiums are generally paid from income that you haven’t paid tax on. In contrast, life and TPD insurance premiums paid outside super come from after tax money in most cases.

But although your premium costs don’t come out of your own pocket, they can eat away at your final super balance. So if you’d prefer not to reduce your nest egg to stay covered, then insurance outside super could be the answer.

Conclusion

The question of whether to get insurance inside or outside super, or a mix of both, is different for everyone.

Once you’ve made your choice, it’s not a set-and-forget decision. With each life stage and major event – such as a marriage, childbirth, mortgage or pay rise – comes new and different responsibilities. So be sure to check in with your financial adviser if your situation changes.

Making the decision to see engage with our financial planning services means that you want to make a positive difference to your personal financial future. We truly believe everyone needs a financial plan. We can help you to understand the intricacies of investing, taxation, and the ever-changing legislation around superannuation. Our finance advice can really make a difference to you by helping you identify realistic goals, and put strategies in place to achieve them.

Are you ready to take control of your personal finances?
Get the SMART team working with you. Call SMART Business Solutions Financial Planning on 03 5911 7000 or reception@smartfinancialplanning.com.au.

Important information: This document contains general advice. It does not take account of your objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.