Life Insurance Provides a Financial Safety Net

While we all wish for excellent health, the reality is that some of us may suffer from illness or injury from time to time. And this could have an impact on your family’s financial situation.

Various types of life insurance or personal insurance can give an income when you are unable to work or a lump amount to safeguard your loved ones in the event of a disaster.

Life insurance and total and permanent disability (TPD) insurance are offered through your superannuation fund or directly from an insurance company. Other products not typically offered by super funds include accidental death and injury insurance and critical illness or trauma coverage.

Nearly ten million Australians have at least one kind of insurance provided by superannuation (life, TPD, or income protection).

Why You Should Consider Buying Life Insurance

Life insurance provides a financial safety net by paying out a death benefit to your beneficiaries in the event of your unexpected death. This can help your loved ones cover expenses such as funeral costs, outstanding debts, and ongoing living expenses.

Life insurance acts as a protective shield so it is important to include it in one’s financial planning. Here are some data and more information about life insurance and its benefits:

Examine what your fund has to offer.

Personal insurance is typically provided by super funds in three forms. These are some examples:

• Life insurance, sometimes known as death cover, pays out a lump amount to your beneficiaries in the case of your death.
• Total and Permanent Disability (TPD) pays a lump sum if you are fully and permanently handicapped as a result of illness or injury and are unable to work.
• Income Protection provides a monthly income for a certain amount of time if you are unable to work due to illness or injury.

While these insurance policies can provide useful protection, it is critical to be aware of the situations in which coverage may not be available. Super funds, for example, will revoke insurance on dormant super accounts that have not received contributions in at least 16 months.

Some funds may also cancel protection if your balance falls below a certain threshold, usually $6000. If you are a new super fund member under the age of 25, you will not be automatically covered by insurance.

Should you get super insurance?

Using your super money to purchase personal insurance has advantages and disadvantages, so consider how they may affect you.

On the bright side:

• Less Expensive: Insurance through super is less expensive because the premiums are withdrawn from your super amount, decreasing the impact on your day-to-day cash flow. Many super funds immediately give insurance coverage without requiring medical exams or significant paperwork.
• Tax Advantages: Some donations to your super for insurance purposes may be tax-deductible, offering tax advantages.

Consider the disadvantages:

• Limited Flexibility: Superfunds can only offer a limited selection of insurance options, which may not entirely meet your requirements.
• Reduced Retirement Savings: Using your super amount to pay insurance premiums means less money invested for your retirement, potentially reducing your eventual payout.
• Coverage Gaps: Relying exclusively on your super fund’s insurance may result in coverage gaps because the default options may not cover all of your specific situations.
• Tax Implications: If the beneficiary is not your dependant, some lump sum payments may be taxed at the highest marginal rate.

Don’t forget about the life admin.

Whether you choose to purchase insurance through your super fund or not, it is critical to evaluate your insurance coverage on a regular basis to ensure that it reflects your current life stage and that you are not paying excessive premiums if you have more than one super fund.

Insurance within super can be a helpful safety net, giving you and your loved ones with critical financial support. Understanding the different types of coverage available, the benefits and drawbacks of insuring inside super, and the importance of regular evaluations are all necessary steps to making the most of this advantage. Please contact us if you would like to discuss your insurance alternatives.

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