Insuring inside or outside super
When it comes to choosing whether to hold personal insurance inside or outside super, both options have pros and cons. Which one is right for you?
Benefits of each
Insurance inside super
§ Premium
payments can be tax effective (although benefits may be taxable)
§ Premiums
may be cheaper
§ Often
require no medical checks to get automatic cover
§ Can
help you stay covered during periods of low cash flow.
Insurance outside super
§ Can offer more cover options
§ Policies are typically more flexible and customisable
§ Can offer higher levels of cover
§ Premiums don’t eat away at your final super balance.
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.
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.
For more
information
Speak to us if you would like to
understand how this information might impact your financial situation.
Ridgway Financial Services
101 Neil Street,
Toowoomba QLD 4350
P 07 4688 9111
F 07 4688 9199
E count@ridgwayaccounting.com.au
W www.ridgwayaccounting.com.au
Important information
Ridgway Financial Services are authorised representatives of Count Financial. 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. This document has been prepared by Count Financial Limited ABN 19 001 974 625, AFSL 227232 (Count) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. Count Wealth Accountants® is the business name of Count. Information in this document is based on current regulatory requirements and laws, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Count Financial, its related entities, agents and employees for any loss arising from reliance on this document. Count Financial is registered with the Tax Practitioners Board as a Registered Tax (Financial) Adviser. However your authorised representative may not be a Registered Tax Agent. Consequently, tax considerations are general in nature and do not include an assessment of your overall tax position. You should seek tax advice from a Registered Tax Agent. If you do not wish to receive direct marketing material from your adviser, please notify your adviser by email, phone or in writing.
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