Buying Life, TPD and income insurance, should I buy it in my Super or outside of the fund?
Many of the company and industry funds offer insurance in the super. Often this allows you immediate acceptance often without medicals and involving a lot of paperwork.
Due to the size of many of these company and industry funds and the buying power of the funds, insurance premiums in the large company funds and industrial funds are usually cheaper.
The premium in super are paid directly through the super account. The employers and your contributions through salary sacrifice help pay the premiums. For young couples paying off a mortgage this can help the family budget. The premiums are not coming out of your personal pocket.
On death benefits paid to dependents are usually tax free and TPD benefits are tax free after 60 for the person insured.
Disadvantages of Insurance in Super
The biggest disadvantage of paying your premiums in super is they are reducing your final retirement benefit. With insurance premiums sky rocketing in price particularly for disability insurance cover offered by super funds, the compelling argument of cheaper insurances through super funds is no longer such an attraction.
Another disadvantage you need to consider having insurance in super is that insurance benefits consisting of Life, TPD and income protection offered by your work or industry fund are conditional on being a member of the fund and the cover offers no way to take cover in your personal capacity if your circumstances change in the future. With personal insurance you have complete flexibility and can make changes. The renewal of cover is not guaranteed and the super fund has the right to terminate the policy or change the definitions, with a personal insurance this is not the case.
In a super fund, in the case of a disability or income contribution policy the super fund could require you to retrain which means you are not insured for your current occupation.
Further, a person joining an insurance scheme would be encouraged to take out a level premium this is not offered under superannuation, the premiums are stepped which means the cost of cover increases as you get older, sometime quite considerably.
If you become disabled due to sickness and injury during a period of unemployment and found you could not return to work, you may find yourself uninsured if holding a disability insurance in super.
Finally, remember you do not have to have 100% of your insurance cover in or outside super as you can split it.