Superannuation and personal insurance changes – Review your super
Buying insurance through super has many advantages, but you need to make sure you are getting the right type of cover for your individual needs. Also, in some cases, you may be paying for nothing.
Most super funds offer life insurance and total and permanent disability (TPD) insurance to fund members and, in some cases, they offer income continuance or income protection cover.
However, since the introduction of the Protecting your Super reforms in 2019, this type of cover is no longer automatic.
If you have a members balance of less than $6,000 in your account or your superannuation account has been inactive, then the insurance component may have been cancelled unless you advised the fund otherwise. An account may be deemed inactive if, for example, it has not received any contribution for the past 16 months.
It should also be noted that insurance cover is no longer offered to new fund members aged under 25.
If you do have insurance in your super account, then it is a good idea to check that the type and level of cover is right for you. This is particularly the case now that changes have been introduced as part of the recent Your Future, Your Super legislation.
From November 1, unless you choose a new fund when you change jobs, the first fund you joined will be ‘stapled’ to you throughout your working life. This is where problems can arise; even though the nature of your employment may change and/or the nature of your work may change, you stay connected with the old fund on the same terms of the cover. Accordingly, while the fund remains the same, so will the insurance cover. Would your insurance now cover you if you were no longer able to work? And if it did, would the cover be sufficient? It may well be that your new occupation is not even covered. Most TPD policies within super are for “any” occupation rather than “own” occupation. This three-letter definition can make a world of difference.
Despite this, there are still many benefits from having a life and TPD insurance cover in your super. Firstly, the premiums are generally lower because the fund buys the insurance cover in bulk. In addition, your premium payments are effectively lower as they come out of your pre-tax rather than your post-tax income.
But the downside is that the default level payout may be lower than you might need. You should check if this is the case and maybe consider making additional premium payments to give yourself and your family more appropriate cover. Be aware though that opting for a higher payout could mean you may have to undergo a medical examination.
Also, the level of life insurance cover in super actually reduces over time to the point where your cover reaches zero by the time you are 70. And for TPD cover it ceases at 65. ii
It is important to periodically review your insurance cover to ensure that you have both the right type of cover and the right level of cover.
While income protection insurance is sometimes available through your super, it may be necessary to look outside. Such policies pay you a regular income for a specified period if you are unable to work due to an accident or illness and the premiums are tax-deductible outside super.
Should you require further information in relation to Superannuation and Personal insurance please feel free to contact Peter Quinn by submitting an enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment.
The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.