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Insurance in Super

Personal insurance cover is often available from your super fund which can be beneficial for a number of reasons.

  •  Cashflow - Premiums are deducted from your super balance, so the cost doesn’t affect your day-to-day cash flow.
  •  Tax-effective - Premiums can be paid with pre-tax dollars (eg with your salary sacrificed super contributions).
  •  Automatic acceptance - Some insurers offer automatic acceptance through your super fund, ie you may not have to undergo a medical examination to gain cover up to a certain level.
  •  Lower cost - Insurance is often at group rates, so your premiums may be at a lower cost than if held outside of super.

Things to consider
While holding insurance within super can be beneficial, there are some other things you should consider. You may wish to discuss these with your financial adviser.

Will your super savings be impacted?
If you are not making regular tax-effective contributions into your super fund, will the cost of insurance premiums erode your super over time?

What about your tax position?
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 a financial adviser about what the best strategy is for your own situation.

How will any 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 your life insurance benefits and inherit your 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.

Do you have a 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 may help here.

Can financial advice help?
A financial adviser can review your overall financial situation, commitments and lifestyle to help you decide on an adequate level of insurance cover. They can also advise you on whether to hold insurance inside super, outside super or to hold a combination of both.


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