Does your ‘super’ look so super with insurance?
Have you super-charged your insurance?
Charging your superannuation with life insurance costs has its merits – but there are also negatives to that strategy as well. Having your super account carry the cost of your personal risk insurance can make sense. There are some issues to consider: get them right and your family will be able to comfortably sleep at night: and you will enjoy the affordability!
Consideration of charging life insurance costs to superannuation
There are a number of considerations, both for and against charging your personal risk insurance costs to your superannuation account: consider some of them
- What types of cover are provided? (Are they appropriate to your needs now – and can they be altered appropriately, as your needs change?)
- How has the level of cover been matched to your needs at any particular time? (Has an insurance needs analysis been conducted by an experienced financial adviser, relevant to your circumstances?)
- Are the conditions of the policy appropriate to your financial and family circumstances? (Life insurance policies within superannuation are usually subject to different terms of acceptance, different definitions and claim eligibility; and are not always transferrable as you move to a new employer/ superannuation provider. You need to be aware of the effectiveness of the protection on which you and your family will rely.)
- Are the premiums that are being deducted from your superannuation account, commercially competitive? (This is not a question about whether it is the cheapest cover available, so much as a question about the value for the premium paid.)
- Are the policies and protection transferrable? (This question is one that needs to be asked of each superannuation provider: it is not universally determined just on the basis of the nature of the fund. For example, not all industry funds will accept transfer of cover from another industry fund; nor will all retail funds necessarily accept roll-over of life insurance within superannuation of another provider.)
- Is there a continuation option in the event that you leave your current employer or elect to change to a different provider?
- Can you prevent the level of cover from diminishing as you age (and possibly undertake higher financial obligations)?
- Are you able to nominate beneficiaries within the superannuation account so as to be able to ‘customise’ your estate planning?
- Are the premium costs, tax deductible?
Super charged life insurance or other alternatives
For many readers their life insurance within superannuation is the only life insurance they hold; and to that extent, the fact that the insurance protection exists is a good thing. Better to have some insurance, than to be Uninsured. The more common problem in Australia is that people are underinsured! To ensure that you are neither under- or over-insured, an insurance needs analysis performed by a qualified, experienced financial adviser should be consulted.
In some cases the answers to the questions raised above may actually lead to a review of whether the superannuation provider, who is holding the insurance policy / protection for you, is the most appropriate to your circumstances. Whilst the superannuation account balance may not be able to be changed merely by changing providers, strategies to increase the amount accumulated need to be considered: and again, a qualified, experienced financial adviser/ planner can ensure that you are utilising your superannuation account in your best interests.
The good news at the end in all this is that insurance providers are becoming more understanding (and tolerant) of the rules around superannuation and have designed policy products that can be taken conjointly within and external to, superannuation. This can be a useful strategy, minimising the cost of any protection that may not be deductible for tax purposes.
When personal risk insurance is considered along with estate planning, superannuation is an important context: these are areas that each contains considerable complexities and those are best handled by your experienced financial planner. They will evaluate your circumstances, perform a needs analysis, review available offerings from the appropriate providers and, along with quotes for the costs of the various options, provide recommendations for your consideration as to the structure and complexity of your protection.
Wanting help with strategic funding of life insurance costs?
The qualified, experienced team of financial advisers at Continuum Financial Planners Pty Ltd can assist you with ensuring that your life insurance cover is both relevant to and adequate for, your identified needs; and that your superannuation can be managed to provide as financially independent a retirement as possible for you. To engage with one of the team, please call our office on 07-3421 3456; or complete the Contact Us form on our website – and you will be offered a meeting at your convenience.
(This article was first published in July 2011: it has been updated and/ or refreshed occasionally, most recently in February 2021.)
