What is superannuation linked life insurance?
Should I have life insurance product linked to my superannuation?
Superannuation linked life insurance products are those that have elements of the protection for the insured covered both inside and external to superannuation. A particular policy structure links the two elements.
Many of us have at least some of our life insurance protection paid through our superannuation accounts. In some cases this is a cash flow issue, but for many it is a consequence of the superannuation arrangements made by their employer. In any event, holding life insurance is a prudent strategy, ensuring that the future financial independence of the insured (and that of dependants) are adequately provided for should illness, accident or other debilitation befall them.
It is worth noting that personal risk protection taken through superannuation structures usually lacks some of the features that are available in similar life insurance products if they are taken outside of that environment.
Most of the insurers in the Australian market now offer ‘linked’ products so that the more basic policy features can be paid for by the superannuation account trustee; and the optional extra features can be held outside of the superannuation account – and paid for by the insured. Generally speaking, the greater part of the premium will be payable by the superannuation account trustee. This premium apportionment is quite logical, given that the basics of the cover realise the primary elements of the risk carried by the insurer.
Can all types of life insurance policies be owned in a superannuation account?
Because of the operational intent of the Superannuation Industry Superannuation (SIS) legislation to provide retirement benefits, not all forms of life insurance are eligible to be held in a superannuation structure: indeed some of the features of life insurance policies currently offered have been found to go beyond what is called the ‘sole purpose test’ for superannuation – and are therefore not able to be held in that structure.
There are a number of types of life insurance, including –
- Term life insurance;
- TPD insurance (covering total and permanent disability);
- Trauma insurance (also known under other names including Critical Illness insurance);
- Income Protection insurance (often known in superannuation accounts as Salary Continuance insurance); and
- Business Expense insurance.
To date, only Term Life Insurance, TPD insurance and Income Protection insurance (in its limited form known as Salary Continuance insurance) are able to be held as superannuation linked life insurance products.
Why should I have life insurance?
Life insurance products are a resource available to you to provide financial protection at a time when you, your family and your dependants are likely to be most vulnerable. Reading the articles linked in the above section of this article will help clarify both the purpose of the particular types of policy available; and the direct relevance that might be applicable to your personal circumstances.
Australians generally are under-insured: there are numerous suggestions as to why that is the case. Some of the answer is that Australians consider the cost of insurance premiums prohibitive, especially when they are in good health and not experiencing any disability. Part of the solution to this cost can be found in partnering with your superannuation trustee to take the cover you need through one of the split-linked policies referred above.
Helpful advice is available about insurance in superannuation…
Our experienced advisers at Continuum Financial Planners Pty Ltd, encourage regular reviews of the levels of insurance held, the types of insurance policies held, the structure (name) under which they are held: if you would like to have a review of your insurance portfolio – particularly if you have multiple superannuation accounts, more than one of which has insurance protection in place – please call us (07-3421 3456) or use our website Contact Us page. We will listen to your current circumstances, gain an understanding of your anticipated future needs – and we will suggest solutions for personal circumstances.
(This article was originally posted in September 2013; it has been renamed in May 2016; and occasionally refreshed/ updated since. most recently, in December, 2020.)