Billy Explores Summary
Most Aussies know these days that you can get life insurance cover through your superannuation. Why is this different from a stand alone life insurance policy and what are the pros and cons of having life insurance cover in super?
Pros of Life Insurance In Super
- Life insurance in your super might be cheaper than standalone life insurance cover
- You might be able to compare life insurance cover offered within your super
- There might be tax benefits with life insurance in super
- You might not have to do a medical to buy life insurance
- Super policies often include TPD and income protection as part of the life insurance policy
- It can be easier to get life insurance in your super
- You might be able to increase your life insurance cover
Cons of Life Insurance in Super
- Sometimes you can’t properly compare life cover within super
- The amount of life insurance coverage might not be enough for your needs
- It reduces your final super balance
- Trauma insurance is not normally available through super funds
- You may not be able to guarantee who the beneficiary will be
Pros and Cons of Life Insurance in Super
Most people know these days that you can get life insurance cover through your superannuation. Why is this different from a stand alone life insurance policy?
More than 70% of Australians who have life insurance in Australia in 2022 have it through their super fund. This means that a lot of people have life insurance through their super fund (often along with total and permanent disability insurance and income protection insurance).
Life insurance in super is usually only small amounts, and may not be the best life insurance policy for your needs. You can choose to increase it. In its Underinsurance in Australia 2020 report, financial research firm Rice Warner says that the median default life insurance cover in super meets “approximately 65 to 70 percent” of the basic cover needs of average households, but “a much lower proportion” for parents with dependent children.
A definite pro is that a life insurance policy that is part of a super fund tends to have lower premiums than one that is bought separately, but it may not cover as much and be the best life insurance policy for your needs.
Now might be a great time to think about whether a life insurance policy in your super fund is actually the best life insurance cover for your needs, whether you’re comparing super funds or looking at your life insurance options. Here are some of the pros and cons that might help you out to make that decision.
Pros of Life Insurance In Super
Obviously if you have life insurance in your super you won’t have the opportunity to compare life insurance policies in Australia from other providers. However, there are many pros of having life insurance in Australia, and it could very well be the best life insurance policy for your needs!
Life insurance In Your Super Might Be Cheaper Than Buying Life Insurance Outside
Due to the number of people who belong to them, super funds can usually get group discounts on the life insurance premiums they charge their members.
This doesn’t mean that it’s always cheaper than getting the same insurance coverage on your own, but it does mean that the insurance premiums may be very low compared to what you could get on your own.
It might be a good idea to compare life insurance policies in Australia, both and compare the cost of life cover that you buy directly with the cost of life insurance that your super fund offers.
Compare Life Insurance Policies Within Your Super
You might be able to have the opportunity to compare life insurance policies and terms within your super fund and get the best life insurance policy for your needs. After all, we are comparing the best life insurance in Australia in 2022!
There Might Be Tax Benefits With Life Insurance In Super
Depending on your employer, you may have a few ways to pay for these premiums by putting money from your salary into your retirement account. Actually, one of the questions we regularly get asked is “Do You Know If The ATO Says Is Life Insurance Tax Deductible?”
The Australian Taxation Office (ATO) says that you and your employer can agree to “sacrifice” some of your salary or wages by putting a certain amount straight into your super fund instead of giving it to you. The ATO says that this will be treated as an employer super contribution and taxed at a maximum rate of 15%, which is lower than the marginal tax rate for most people.
This is also true for people who are self-employed because they can get a direct tax deduction on their life insurance if they pay for it with pre-tax income (called “concessional contributions”).
Note, though, that money you put into your superannuation through salary sacrifice can’t be taken out again until you meet certain conditions. This means that you are locking away your money. Before making a choice, you might want to talk to a qualified professional, like a financial adviser, about salary sacrificing.
You Might Not Have To Do A Medical To Buy Life Insurance
This is another benefit. If you have the default level of life insurance coverage that your super fund offers, some funds may accept you without a health check.
Note, though, that if you want more coverage than the standard level through your super fund, you might have to fill out a medical questionnaire and get a medical exam. It definitely is worthwhile to look carefully at your insurance’s Product Disclosure Statement (PDS) to see if you’ll be covered for any health problems you already have.
Super Policies Often Include Both TPD and Income Protection Insurance
Along with life insurance, some super funds also offer TPD insurance and income protection insurance. Income protection insurance in super is often also called salary continuation insurance.
Getting these policies and your life insurance through your super fund may be cheaper than getting insurance elsewhere, since super funds can buy policies in bulk.
It Can Be Easier To Get Life Insurance In Your Super
When you get life insurance through your superannuation, the premiums are taken out of your superannuation balance instead of your own bank account.
It will cost you either way, but if you have other financial obligations like a home loan or a family to raise, having the premiums taken out of your super account may make it easier on your immediate cash flow, even though it will still come out of your retirement nest egg.
It’s important to remember that as of April 2020, people under 25 who join a new super fund will no longer get life insurance by default, unless they work in a dangerous job. This means that if they want this insurance, they will have to ask their fund for it. Accounts with less than $6,000 in them and no contributions for at least 16 months will also lose their insurance coverage unless the account holder “opts in” to keep it.
You May Be Able To Increase And Compare Your Life Cover
Of course, sometimes you realize that it’s not the best life insurance policy for your needs, and if you aren’t happy with the amount of life insurance cover your super fund provides by default, you can usually apply to increase your cover.
However, note that you may have to answer a medical questionnaire and complete a health check before your increased cover is approved.