There are a lot of adds on TV and media by the various super funds and the advantage of funding your insurances from that super fund. I thought I would provide some thoughts on this and include the advantages and limitations of such a strategy. This blog will only cover Income Protection as I will touch on Life, TPD and Trauma insurances next time.
INCOME PROTECTION VIA YOUR SUPERANNUATION
Have your super fund pay your Income Protection premiums! Saves your cash flow which can put towards other, more important things like paying down a mortgage etc. Sounds great, right!!??
Let’s look at this from the view of “what is the purpose of my insurance?” The answer to this question is always a resounding “If I am sick or injured, I want to know that I have an income stream coming in until I retire!” There is no other reason to pay insurance premiums (for any insurance!) other than to protect yourself from financial loss. If this is the case, then I would imagine that you would want to minimise the ways that an insurer can avoid paying a claim? By owning and funding your insurance wholly via your super fund, your policy has to meet certain “Conditions of Release” under the Superannuation (SIS) Act to allow the super fund Trustee to pay the benefits to you.
Some of the restrictions on an Income Protection (IP) policy owned entirely via super are:
- Cannot offer a true Agreed Value as the SIS Act says that a claimant cannot be paid more than their pre-disability income.
- Needle stick injury and blood-borne disease infection do not meet a Condition of Release.
- Day 1 partial disability is not available.
- You must be employed at time of disability (if you are in between jobs and become disabled during this time, you may not be entitled to claim)
There is also the matter that if your super fund is paying the premium (and thereby reducing your retirement savings at the same time), it is the entity that can claim the tax deduction, not yourself. Generally speaking, if you are in a higher marginal tax bracket, it is more tax effective for you to pay the premium personally and claim the deduction yourself.
A lot of these issues can be avoided if your insurer allows a “flexi-linking” arrangement but due consideration should be given to your personal situation to determine which best suits you!
If you would like to discuss at all, please feel free to get in touch!
07 3382 6723 or email@example.com