Life insurance can be held within your superannuation or externally.
So what are the advantages and disadvantages you should know before deciding how you want to take out life insurance yourself?
There are a number of valuable benefits associated with holding life insurance in your super fund.
1. Life insurance premiums can be deducted from your super balance rather than your usual savings accounts which means more money to spend on daily, more immediate living expenses such as mortgage repayments and other bills.
2. Usually ‘standard or default’ level insurance, you are not required to undertake any medical examinations for life insurance through super, though this may change if you wish to take out extra cover.
3. Because superannuation funds purchase life insurance policies in bulk, they can often achieve more competitive premiums than you could otherwise get on your own.
4. You can salary sacrifice the cost of premiums as a contribution to your super account which can have tax benefits, especially for those on the average income tax rate.
There are also a number of disadvantages worth considering before deciding whether to hold life insurance in your super fund.
1. There is an opportunity cost associated every time money in your super is spent on insurance premiums rather than investments with compounding capacity. However, this is probably not something that should deter you as there is an equal opportunity cost associated with purchasing insurance external to your super fund.
2. If you require a tailored life insurance coverage plan, it is less likely you will be able to arrange this through your super fund. As such you may need to consider a second life insurance policy external to your super fund.
3. Unlike standard policies outside of super funds, life insurance policies through super funds do not extend to trauma cover, which is used to support people financially in the case of critical illness or injury.
4. There may be a delay in receiving insurance payouts through superannuation funds compared to external insurance providers.
5. You may have less flexibility and control over your beneficiaries when arranging life insurance through a super fund.
To tailor and create the right risk protection plan for you and your family, please contact our office.
References:
https://www.canstar.com.au/superannuation/insurance-through-super-yes-or-no/
https://www.finder.com.au/life-insurance/life-insurance-tips
https://www.moneysmart.gov.au/insurance/life-insurance
