The skills necessary to be a business owner18 December 2020
Importance of record-keeping for businesses24 December 2020
Over 70% of Australians have life insurance through their super fund. This acts as a financial safety net through your super if something unexpected happens.
There are 3 main types of life insurance that super funds usually provide:
- Life cover: Also known as death cover, this type of insurance pays a lump sum or income stream to beneficiaries when you die or have a terminal illness.
- TDP (total and permanent disability) insurance: If you become disabled or it is unlikely that you will be able to work again then this insurance will pay you a benefit.
- Income protection insurance: Also known as salary continuance cover, pays a regular income for a specified period (length of time or up to a certain age) if you are unable to work due to temporary disability or illness.
Pros of life insurance through super
- Cheaper premiums: Super fund buys insurance policies in bulk so it is cheaper for their customers
- Easy to pay: Automatically deducted from super’s balance
- Fewer health checks: Super funds accept default level of cover without health checks – particularly useful if you have a high-risk job or health conditions. But, remember that you should check the product disclosure statement (PDS) to see exclusions and treatment of pre-existing conditions.
- Increased cover: You have the flexibility to increase your cover above the default level but you may need to answer some questions about your medical history.
- Tax-effective payments: Employer’s super contributions and salary sacrifice contributions are taxed at 15% which is lower than the marginal tax rate for most people.
Cons of life insurance through super
- Ends at age 65 or 70: While outside of super, your cover will continue as long as you are paying premiums, but TDP and life insurance tend to end at 65 and 70 respectively.
- Limited cover: Since default insurance isn’t specific to your requirements, your cover might be lower than what you would receive outside of your super.
- Cover can end: In some cases, changing your super fund can cause your contributions to stop or your super account to become inactive – this will end your cover and you will end up with no insurance.
- Reduces your super balance: Since premiums are deducted from your super balance, you will have fewer savings for retirement.