by Brent Cerutti, Kelly Wealth Services
It is now impossible to distinguish superannuation advice and personal insurance advice. Many years ago these were two quite separate issues in both advice and product. Now almost everybody receives some level of insurance within their superannuation fund when it is started.
In order to ascertain whether your existing cover is adequate I would consider asking yourself the following questions:
- What type of policies do I need? Is it life insurance, total permanent disablement, income protection or trauma?
- How much insurance cover do I need in dollar terms?
- Is it for personal or business purposes?
- What existing cover do I have in my superannuation account?
Once you have worked out what you need you can then check that off against what you already have. The next part of the analysis that we look at as advisers, is to work out the quality of the insurance that you may already have. This is often where it can get more complicated. The quality of insurance within superannuation varies widely. There are many very good quality insurance options available to superannuation funds as well as many very poor quality insurers.
No one knows what the future will bring. That’s why it helps to plan ahead.
Like all insurances, the devil is in the detail, or in these cases, the product disclosure statement.
It is important to understand what exactly you are covered for, and just as importantly if there are any exclusions on the insurance policies.
As an advisor in Cairns & FNQ, our clients are only too aware of how the policy wording can affect your ability to claim in general insurance cases (think cyclones and floods).
The same principle applies to your life insurance, income protection or trauma.
Although cost is a big consideration, quality is paramount. After all, these policies need to be able to pay you and your family in a timely manner in your greatest time of need.
Do something today that your future self will thank you for.
Once you have worked out what your needs are, you should also ask yourself whether the policies should even be owned within a superannuation fund. There are different tax treatments of benefits paid and premiums paid depending on the ownership structure you choose.
As a general rule, life insurance can be held within superannuation and is paid tax-free to a “superannuation dependent.” There is potentially tax payable if the beneficiary is not a “super dependent.” A Total and permanent disablement payment may be taxed depending on the manner and timing of the withdrawal.
Income protection can be owned by a superannuation fund, but there are some limitations to the quality of the product available. Income protection is also a tax deductible expense if you own yourself outside a super fund. You are unable to own a trauma insurance policy inside super.
Lastly, one often overlooked consideration of whether you should own personal insurance policies through your super fund is that the premiums are paid from you retirement savings. Given that most people will struggle to save enough for their retirement having the added burden of insurance premiums paid from your super fund will only reduce your ability to save adequately for retirement.