Insurance through super now a lot more attractive
Insurance can help provide for you and your family if you were to experience a set back due to illness or injury, a long-term change in your health or even death. At an emotional time, finances should be the last things on your mind.
Sweeping changes to super proposed in last year’s Federal Budget make putting your insurance through super a very smart strategy.
From 1 July 2007 there are new advantages to insurance through super:
- Abolition of the Reasonable Benefit Limit (RBL) means that there will be no restrictions on how much insurance you can have in super
- All insurance under super is simpler and more tax effective, particular for high income earners
- Death benefits are tax free to your children if they are under 18 years of age.
- It’s cost effective because premiums paid on death and disability policies are tax deductible to the fund
- You don’t have to worry about cash flow as premiums come out of your super fund
- Group premium rates may be available and are generally cheaper
- Benefits may be paid as pensions in most cases
- The anti-detriment payment may increase your final benefit payable.
Different types of cover
While life insurance will allow your family financial security with a lump sum payment if you die, there are other insurance options to consider in case of a serious illness or accident. These include:- Trauma cover
- Total and Permanent Disability
- Income Protection
Life insurance cover
Life cover provides financial security for your family in the event of your death, with a lump sum payment or instalments. This could assist your loved ones in paying off the mortgage and other debts, provide for your children’s education, or cover living expenses. The benefit of having life cover paid by a super fund is that the fund can claim a special tax deduction for the premiums paid. This tax deduction is not available if you pay the premiums yourself.Case study
Veronica passed away in a car accident. Her super included death and disability insurance of $500,000 which was payable to her surviving spouse and children. Veronica’s surviving spouse, who is under 60, decided to receive a super pension in instalments of $50,000 each year. The pension will be eligible for a tax rebate of 15%.Trauma cover
It is possible to obtain trauma cover through super. Trauma insurance is generally paid as a lump sum or instalments if you are diagnosed with one of a range of specified conditions such as cancer, heart attack and stroke. The specified conditions differ from fund to fund and it is important to check what your policy covers. Trauma cover could contribute to maintaining your lifestyle under changed circumstances.Case study
Sheena is diagnosed as having breast cancer. She has trauma insurance which will pay a lump sum of $50,000 in her circumstances. When she receives the payment she uses the money to pay her medical bills and other expenses such as the mortgage on her house while she is recovering.Total and Permanent Disability
Total and permanent disablement cover (TPD) provides a tax-free lump sum or instalments if you are unable to work due to illness or injury. The benefit of having total and permanent disability paid by a super fund is that the fund can claim a special tax deduction for the premiums paid. This tax deduction is not available if you pay the premiums yourself.Case study
Vera was involved in a car accident and was permanently disabled. She had taken out death and disability insurance of $500,000 through super. Initially she decided to take a small sum to pay medical bills and modify her house, with the remainder of her disability benefit to be paid as a disability pension.Income Protection
Income protection insurance protects your ability to earn an income. This cover can provide up to 80% of your regular annual pre-tax income as a monthly payment, should you be unable to work due to illness, accident or injury. In most cases, insurance premiums for income protection can be claimed through super as a tax deductionCase study
Marco works as a barista in a coffee shop he owns and earns $1,500 a week. He is injured at work and will be off work for 3 months. During the time he is off work his income replacement policy will pay him 75% of his ordinary earnings after a waiting period of 4 weeks. He will receive $1,125 under the policy which will be paid after the waiting period has elapsed.Having insurance cover is the best way to protect your family from the unexpected, and setting it up through super is now a lot more attractive.
This editorial does not consider your personal circumstances and is general advice only. You should not act on any recommendation without considering your personal needs, circumstances and objectives. RetireInvest recommends you obtain professional financial advice specific to your circumstances.