Using your Super to Pay for your Personal Insurance
Here is an extract from an article in Money Management on holding insurance through super. Personal Insurance is a must if you have debt or dependents but you don’t want to waste your precious cash flow on paying for premiums…. the solution is to use your superannuation benefits to pay for your insurance. It can be more tax effective but most importantly it has no impact on your cash flow.
So which super fund is the one you should join? The decision usually is based on which one is likely to give you the best long-term return after deducting all fees and charges.
But performance and fees are not the only factors to consider when assessing a super fund, Jeff Bresnahan, head of SuperRatings, says.
He says one of the more important is the quality and cost of the insurance the various funds provide. “Taking life insurance cover through your super fund is usually very cost-effective, but it is important to ensure the cover suits your needs,” Bresnahan says.
And while recent developments have been mostly positive, with a number of the big industry super funds improving the flexibility of their insurance options, not every change has benefited members.
“More employer superannuation funds are imposing tighter terms and conditions on payouts,” Bresnahan says. He warns it is crucial to check on these before relying on a fund’s insurance cover.
There are three main reasons why taking out insurance — particularly life cover and total and permanent disability insurance — through a superannuation fund can be attractive:
It is usually cheaper because the fund is able to buy in bulk and so egotiate a lower rate.
It is tax-effective since the premiums are paid for out of contributions made by your employer or from personal contributions that generate either a direct tax deduction (for the self-employed) or are paid from pre-tax income, in the case of salary sacrifice contributions.
Basic cover often doesn’t require a medical check, with some funds also providing additional cover without the need for a medical.
On the other side of the ledger are a number of drawbacks including:
Many funds provide members with access to less cover than they want or, in some cases, less cover than they need.
There can be delays in life insurance benefits being paid since these initially go to the fund, which then distributes them to the beneficiaries, which can be a convoluted process.
Unless you have the option of making a binding beneficiary nomination, you can’t be certain your life insurance payout will go to the people you want it to.
Benefits are subject to more rules limiting who can receive a payout tax free.