Will Your Superannuation Insurance Products Be Sufficient If Something Goes Wrong?
Most working Australians contribute to a superannuation fund and practically all superannuation products include some form of insurance, whether it be life insurance, total permanent disability insurance or income protection insurance. In fact, the Australian Government’s money smart website estimates that of the Australians who hold some kind of these insurance products, over 70 per cent are covered solely through their superannuation fund. https://moneysmart.gov.au/how-life-insurance-works/insurance-through-super
There is no doubt that, as Australians, our compulsory superannuation program and associated insurance products afford us a level of protection that is not necessarily on offer in many other countries. And there are undoubtedly some real positives to this vehicle of coverage.
One of the biggest advantages is convenience – the premium is paid automatically from your super fund without having to set up direct debits from your bank account (although, make no mistake, you are still paying for it).
And because of the purchasing power of superannuation funds, the premiums may be cheaper than if you were to secure cover outside superannuation. In addition, medical checks are often required only at high levels of cover and there may be some additional tax benefits from holding your cover within superannuation.
Nevertheless, there is a serious question to be asked whether your superannuation cover will be sufficient in the event of an unfortunate or untimely incident?
The biggest concern about insurance within your superannuation is that it is generic and not at all tailored to your specific needs. If you are a small business owner or have some other unique circumstances, there is likely to be considerable benefit in taking out a tailored insurance product that suits your situation more specifically.
Australian financial groups will be legally liable if dodgy products such as junk insurance or cash options in superannuation are created and distributed under a new proposal from the corporate watchdog. @MichaelRoddan #finserv #ausbiz https://t.co/W21Cqkbzeh
— Business Review (@aus_business) December 19, 2019
Because they are generic and not tailored, superannuation insurance product pay-outs are often set quite low at a default level and rely on you to then manually increase the cover. If you don’t make changes to the default level of cover, it may not be sufficient to cover you or your family for what is actually required.
Further the superannuation trustee plays a significant role, e.g. it can determine your beneficiaries and, because the superannuation fund is effectively the insurance agent, any payments must go through it, which can cause delays.
Another issue with superannuation products is that cover can end if you change funds or if your account is inactive (doesn’t receive superannuation payments) for 16 months or more).
There is also the option to hold some of your insurance within superannuation and some outside. The two options do not need to be mutually exclusive; you can have both.
If you’re not certain about what your insurance requirements are and whether or not you are adequately covered through your superannuation, it is well worth your time to contact an independent, expert advisor in income protection insurance to make sure you understand what the options and alternatives are and whether you should consider taking out a direct policy to suit your specific circumstances.
Regulators are stepping up surveillance of superannuation funds to better assess the financial damage caused by COVID-19.https://t.co/6xhBEdsI4T
— The Australian (@australian) June 24, 2020
Mike Wallis
Mike has over 25 years experience, having spent his first seven years working as a Broker at Jardine Lloyd Thomson in Melbourne and in 2002 was transferred to JLT’s Accident and Health Department in London. For four years (2002 – 2005) Mike was a specialist A&H Lloyd’s Broker and during this time developed excellent relationships with the Lloyd’s A&H underwriting fraternity. In 2006 he returned to Australia in a senior broking position with overall responsibility for Placement Strategy, including the implementation of underwriting facilities and the various authorities granted by Lloyd’s. Mike was the underwriter at two specialist Underwriting Agencies prior to founding Aspect Underwriting in 2016.
