Is it better to have life insurance included in your superannuation or as a stand-alone policy (outside your superannuation)? Many of us opt for super-life insurance because the premiums are cheaper, without fully realising that the level of cover is significantly less than that of a stand-alone policy.
Unless you have chosen to increase your insurance level (and increase your premiums), the default life insurance provided by your super fund will be at a minimum level and probably won’t include trauma insurance or long-term income protection cover. As with any type of insurance, it’s important to find out what you are covered for, especially if you have a mortgage or a family that depends on your salary.
Reasons to include life insurance in your super
- Cheaper premiums because they buy in bulk.
- Medical checks are often not required.
- Tax concessions when paying your premiums.
- Premiums can be paid from funds held in your superannuation or from superannuation guarantee contributions made by your employer, which minimises the impact on your cash flow.
Reasons to take out a stand-alone super policy
- The level of cover is considerably higher.
- You can get Trauma and Total and Permanent Disability (TPD) cover. While some super funds offer TPD, payouts are usually only made in extreme circumstances such as when you are considered to be permanently disabled and not able to work in any type of occupation (rather than providing a payout if you can no longer do the job you have been trained or educated for).
- Long-term income protection. Typically, only two years of benefits are offered when it is included in super, when what you really need is to have cover through to the age of 65.
- Faster policy payout times. Super life insurance can be slower to pay out, as the payout is first made to the fund and then distributed to beneficiaries.
- All policy beneficiaries will receive benefits tax-free, whereas with super-linked cover the non-financial dependants may have to pay tax.
- Policies can last for many years, unlike super-fund policies that typically expire about age 65-70.
- You are paying your premiums with existing earnings, not by taking from your superannuation (which reduces the amount you have available for retirement).
As your mortgage adviser, Cairns Home Loans & Cairns Wealth & Insurance can point you in the right direction to find out more about life insurance, whether it be to help with calculating how much cover you need or comparing what is offered by different providers. Don’t hesitate to call us if you wish to discuss further.