Superannuation. Before you sigh, as the words ‘not this again’ attempt to cross your lips, don’t worry; we’re going to keep this one relatively quick and to the point (as quick and to the point as Superannuation and insurance options can be).
In part 1 and part 2 of the “Your Guide to Super” series, we walked through the basics of Super for employers and employees, as well as three small steps you can take today that could make a huge difference to your financial future. Of course, we thought you might appreciate just one more tip! And that is;
Add some life insurance
Did you know? Many super funds arrange life and disability cover for their members. Having insurance for accidents and illness can provide you and your family that added sense of security.
Super funds generally offer three types of insurance for members:
- Death cover (aka life insurance),
- Total and permanent disability (TPD) cover for “any occupation”, and
- Income protection (IP) cover
So why choose to insure through your super fund?
- It’s often cheaper (as super funds purchase policies in bulk)
- It’s easy to manage as premiums are automatically deducted and can minimise tax payable.
- Some funds accept members for cover without requiring a health check
However, you might also like to keep in mind that the types of insurance and level of cover available are limited. Furthermore, if you decide to change super funds, your cover may end without notice, tax may be payable on some benefits and there may be delays on the payment of life insurance as your benefits go to the fund first before being distributed to you or your beneficiaries.
And if you’ve got TPD – and heaven forbid something happens to you before you retire – the type of cover you have will dictate when your benefits will be paid to you.
If you have TPD insurance that covers “Any Occupation”, then it should be paid out immediately if you meet the condition of release regarding “permanently incapacitated” and therefore unable to do any further work in any job role.
However, and this is the tricky bit – some TPD policies within Super issued prior to 2014 cover “Own Occupation” only. This insurance covers you for not being able to go back to work doing what you were originally doing (i.e. your own occupation). However, you may be still able to undertake paid employment – thus not meeting the definition of “permanently incapacitated”. Your insurance is still valid, but you won’t be able to access those funds until you reach retirement age – because you can still work at doing something else.
As an example, Imagine you’re a tradie and you’re involved in a workplace accident, in which you do significant damage to your legs. You no longer have the ability to safely climb ladders or scale scaffolding etc. yet you do have the ability to work in an office job or teaching. As such, you don’t meet the definition of “permanently incapacitated”, which means you won’t be able to access any funds paid out under the TPD “Own Occupation” policy until you’re over the preservation age and permanently retired.
As of July 1, 2014, new policies that cover TPD “Own Occupation” are always issued outside superannuation. So if you have an existing TPD policy in Super, it might be time to check you’re still covered for what you think you’re covered for.
You might like to read ASIC’s insurance through super for more information on the types of insurance available and the benefits and considerations you might like to take into account before insuring through your superfund.
Of course, let’s remember that changing life insurance policies can open up a can of worms if you’ve gotten older, have already suffered from illness/disease, etc. so as always, we strongly suggest you seek professional advice before you make any decisions.
Still need more information?
If you’re still not entirely sure how Super fits into your retirement plans, you might like to read an earlier blog post “Your financial future – what does it look like?”
You might also like to look back on the “Your Guide to Super” series, including part 1: The Basics and part 2: Time to review your Superannuation strategies.
And if you want to know how much you might need when you retire to be comfortable, you might like to visit ASICs retirement planner.
As always, if there’s anything that strikes a chord with you here, or if you’d like to know more about your super options, you can call Kerry on 6023 1700, drop us a note or connect with Kerry via LinkedIn.