Application of Insurance to Superannuation

As well as superannuation, most super funds also provide their members with certain vital insurance choices. They’re meant to provide members peace of mind should anything unforeseen happen.

The three most prevalent forms of superannuation advice for insurance are:

• Total and permanent disability insurance (TPD) which can replace your income if you’re wounded and can’t ever work again.
• Life insurance which can assist in providing for your loved ones if you die. Life insurance is commonly referred to as death cover by super funds.
• Income protection insurance, which can replace up to 75% of your regular income in the event of an accident or illness that prevents you from working.

An insurance cover amidst a pandemic

In those kind of difficult and frightening times, the last thing you want to be doing is worrying about is your insurance protection.

In case of a pandemic such as the COVID, please note, the policies of some funds may not offer insurance cover for pandemic-related claims. When a pandemic exclusion has been imposed by the insurer the member of such fund needs to consider its options.

If you have income protection insurance via your superannuation, you are not protected for loss of income through decreased hours or job loss. If you become temporarily unable to work due to illness or injury, your income protection insurance will kick in to help cover your bills.

The first place you should go for information on insurance coverage and fees is the website of your fund. Unlike income protection coverage, which is often provided only upon request, death and TPD insurance are frequently bundled together by funds and made available automatically to members.

From April 1, 2020, no one under the age of 25 will have automatic insurance coverage. You must submit an insurance application to your fund if you wish to be insured. However, this does not apply to those who are in what are deemed to be extremely hazardous jobs. Insurance coverage for low-balance members of a super fund cannot be provided automatically until the member’s super account has a minimum balance of $6,000. This restriction does not apply to current members who held a balance of $6,000 or more at any time between 1 November 2019 and 1 April 2020. Save in mind, though, that you’ll need to keep enough money in your super account to cover your insurance costs.

Why having insurance in super makes sense

It’s common to save a significant amount of money by purchasing insurance for death, disability, and income loss via your retirement savings plan rather than on your own.

Superannuation funds have significant buying power and can purchase in bulk, which means they can often negotiate better premiums and pass the savings on to members. Because Industry Super Funds do not have to pay advisors commissions on insurance sales, they are able to pass the savings on to their customers.

Regardless of the health status of the members, most super funds are able to negotiate insurance coverage with their insurer. So even if you’re in poor health you may often still obtain automatic basic level protection at premium rates agreed by your super fund with their insurer.

There’s also no worry of missing a payment (possibly leaving you without protection) since funds automatically remove the premium from your super.

Finally, your super fund insurance costs should be reduced since the fund receives a tax break for paying them. You may always contribute more to your superannuation to meet the insurance premium if your current balance is insufficient.

Adjust your policy’s coverage to reflect your actual needs.

A superannuation advice is that, in the event of an emergency, it is vital that you have adequate coverage via your superannuation, just as you would with any other type of insurance. In a similar vein, you shouldn’t waste money on insurance that you won’t need. You should make sure your cover is enough and appropriate.

These factors should be considered while evaluating your insurance:

• You should not assume that the minimum level of coverage will meet all of your requirements.
• Having children or other dependents may need an increase in your life insurance coverage.
• If you do not have any dependents, you may choose to drop the death benefit but maintain the TPD coverage.
• If you’re self-employed, a contractor, or you have a mortgage, income protection insurance is a must-have.
• If you earn a raise in salary, have children, or take out a loan, your coverage will not immediately increase to reflect the new circumstances. If your situation has changed, it may be time to review your insurance policy.
• Your account will be automatically debited for premium payments. This implies that you will have less money in your retirement account and your superannuation will not increase as much over time.

Figuring out your Insurance Cover

As a superannuation advisor Australia, we do advice that you may learn more about the coverage you receive via your superannuation fund by reviewing your most recent statement. To get further information or clarification if you can’t locate it, contact your fund.

After determining your insurance coverage, you should look into other insurance options and factor those in as well. If you get two separate plans that cover the same object, you may end up paying twice for the same protection. You may want to look into insurance consolidation if this is the case, but before you do, you should verify the following.

• There is the option to raise the coverage amount of the insurance you are going for
• Cancellation policy does not result in any fees.
• You understand the guidelines for pre-existing conditions.

Keep in mind that the quantity of insurance you need will vary from person to person based on a number of criteria such as your age, the state of your finances, the number and ages of your dependents, and your current income. To know more about the application of insurance to superannuation contract Omura Wealth Advisers today.

More to read: A Reliable Test of Super performance