When deciding about insurance the best place to start is by looking at your superannuation fund first. Once you know what level of insurance cover you have within your superannuation you can look at your options from there.
Your superannuation fund can provide three types of insurance:
- Life insurance (death cover) which pays a lump sum payment if you die or become terminally ill.
- Total and permanent disability cover which pays a lump sum payment if you suffer a disability that stops you from being able to work again.
- Income protection cover which pays a monthly income stream, for a set period, if you are unable to work due to injury or illness.
While your superannuation fund will at least have a minimum level of insurance, it is important to make sure the cover you have is enough should anything happen to you. This needs to take into consideration your personal circumstances, as there are many factors that can affect the level of cover you need. If you are unsure about your insurance cover you can refer to your superannuation fund product disclosure statement (PDS), contact your superannuation fund provider or consider getting financial advice.
If you are thinking of increasing your levels of cover it is often best to do it within your superannuation plan. You can get the cover you need for you and your family, without it coming out of your pocket as premiums can be automatically deducted from your superannuation balance. In addition, for some members, some funds automatically increase your cover without requiring a health check.
Being insured through superannuation is generally
- tax effective because the premiums are paid from your pre-tax income not your after-tax income, and
- cost effective because superannuation funds purchase insurance policies in bulk at lower premiums.
The benefits of insuring through superannuation are shown in the table below:
| Example Premium | Funded via Super | Funded via non-super policy |
|---|---|---|
| Insurance premium (A) | $706.15 | $706.15 |
| Tax payable (B) | $105.92 Contributions tax = $706.15 x 15% | $442.06 Income tax = $706.15 / (1-38.5%) x 38.5% |
| Credit for the fund deduction for the premium (C) | $105.92 Deduction = $706.15 x 15% | Not available |
| Gross cost to the individual (A + B - C) | $706.15 | $1,148.21 |
| Amount saved by insuring through super | $442.06 |
Source: Macquarie “The benefits of insuring through super”
There are also some other things to be aware of, such as tax on benefit payments. For assistance and advice please call Mario from Harvest on 02 8908 4300 or email [email protected].
