5 reasons why insurance cover in super may not be right for you.

A common misconception I hear is ‘I have insurance cover in my super. Here are 5 reasons why this cover might not be right for you.

• You might not have enough to cover.

While many super funds offer a level of automatic life, total, and permanent disability (TPD) and income protection insurance; the level of cover offered is not tailored to an individual’s circumstances. This means sit can be significantly lower than the cover required. For example, if you have a family as a minimum you need to have enough to cover all debts and potentially a provision for living expenses until the children are no longer dependents.

• The definitions might not be that good.

When it comes to TPD and income protection insurance, in particular, the quality of cover available through your superannuation fund may not be appropriate for your personal situation. Personally, underwritten cover available in the broader insurance market is generally of higher quality. The higher the quality the higher the probability of getting money at claim time.

• You could pay a lot in tax at claim time.

Insurance policy proceeds, released from super are subject to tax if the member passes away and does not have a dependent under tax law. Also, when funds are released in the event of permanent incapacity (TPD) if paid prior to attaining preservation age (generally age 60).

• Income protection is tax deductible.

Your ability to earn an income is arguably your most important asset. Income protection, if held outside of super, is individually tax deductible and if you choose to pay for it within your super, you are not only eating away at your superannuation balance, but you also missing out on the tax deduction.

• The cover might be more expensive than an individual underwriting policy.

The premium paid on group policies might be higher than an individually underwritten policy if you are a healthy non-smoker. The automatic insurance offered is not underwritten so the insurer’s premium must take into account they will be insuring unhealthy smokers. This means that healthy non-smokers are subsidizing the unhealthy smoker’s premiums because everyone pays the same.

If you have any questions or concerns about your insurance through your super fund I suggest you talk to a professional.