What is salary sacrifice into Super and how does it benefit you?
Comparison: Super v Retail Life Cover
Comparison: Why the cheaper and easier option is not always the best option to protect your financial future.
At Wealth Smart, our advisers speak to a lot of clients who believe they have adequate Life Insurance provided through their industry super fund. But what many do not realise is that Life Insurance is not standard across the board, and insurance held through a super fund will not always provide the same level of cover as a retail Life Insurance policy held outside your super.
Super Life Insurance
When signing up to a super fund, you will most likely be given the option to purchase a ‘group’ Life Insurance policy. This insurance is not underwritten, meaning that your personal history is not taken into account and accepted at application which can lead to complications at claim time. With a group Life Insurance policy, you are not in control of the levels of cover, and the terms and conditions can change at any time without your agreement.
Pricing of group insurance is not based on you as the individual; it is based upon what is set at a policy level and dependent on the Group. Group insurance is quite often perceived as the cheap option. But did you know that some industry super fund insurance premiums have increased over 150% in the last 12 months?
Retail Life Insurance
The alternative to Life Cover through your superannuation policy is to purchase an external policy through a retail Life Insurance provider. With retail Life Insurance, your policy will be assessed and written based on you as an individual, taking into account your personal circumstances and needs. You have much greater control over the policy, and can have confidence knowing you are certainly insured and your life is covered.
There are a number of important differences you need to consider when choosing Life Insurance through your super fund or through a retail policy.
The below tables from Wealth Smart partner insurer BT Australia outlines a comparison between one industry super fund on the market and their own retail Life Insurance policies. These tables should be read as a general guide only, as the terms below do not apply to all super funds or retail insurance providers.
| General Policy Terms | Industry Super Fund | Retail Life Insurance |
|---|---|---|
| Is cover unit-based or fixed? | Life and TPD Default cover is unit-based and the value of units decreases from age 31.For example, for a low risk occupation, 1 unit of death and TPD cover at:Age 30 = $100,000 Age 50 = $33,100 Age 60 = $9,900Fixed cover can be applied for, but sums insured will still decrease by 20% per year between age 61 and 65.Income Protection Cover is fixed |
Sums insured are fixed and can only be reduced at the request of the policy owner. |
| Are sums insured linked to inflation? | No, there is no indexation of sums insured, including Income Protection. | Sums insured are increased each year at the greater of Consumer Price Index and 3%. |
| When does cover cease? | TPD = Age 65Life and Income Protection = 70For members of divisions other than a Personal Plan:Income Protection cover ends 13 months from the end of the month for which your last on-time employer contribution was made.Death and TPD cover ends after 13 months from the end of the month for which your last on-time contribution was made, or if your account balance falls below $10,000. | Life and TPD = Age 99Income Protection = Either age 65 or 70 depending on plan. |
| Are pre-existing conditions covered? | Not covered in the following circumstances for the first 2 months:If not working when cover beginsIf client has had more than 10 days in a row sick leave in the last 12 months.Not covered in the following circumstances for the first 2 years:Increase cover with no health questions or a few health questionsIncrease cover using future insurability optionChange occupation categoryChance cover from unit to fixed coverReceiving or entitled to receive income payments from any source when you become a member (including workers compensation, statutory transport accident payments and disability insurance payments).Never covered in the following circumstances:Transfer cover which excludes pre-existing conditionsHave been paid or entitled to be paid a TPD or Terminal illness benefit from any super fund or insurance policy. | Generally, yes.If the pre-existing condition is not covered it will be specifically excluded when the policy is underwritten.If not will be specifically excluded at underwriting time. |
| Life and TPD | Industry Super Fund | Retail Life Insurance |
|---|---|---|
| Available sums insured | With no health checks = $600,000With short form underwriting = $1,000,000With full underwriting – Life no limit, TPD $3m | Life – unlimited TPD $5m (white collar), $3m (blue collar) |
| Is TPD linked to life cover? | Yes | TPD can be linked to life cover depending on the policy. |
| Is life cover buyback available? | No – a claim on TPD reduces or eliminates the Life cover sum insured. | Yes – optional benefit which allows life cover buyback 14 days after a TPD claim |
| Exclusions | Suicide and self-inflicted injuries | Suicide and self-inflicted injuries |
| Terminal Illness Benefit? | Yes | Yes |
| Future Insurability | Yes – marriage, divorce, death of a spouse or new mortgage. Pre-existing conditions excluded for 2 years | Yes – 13 events including ever 3rdpolicy anniversary |
| TPD Waiting Period | 3 months (occupational) 6 months (unemployed) |
3 months (occupational) |
| Any Occupation TPD Definition | You will be considered totally and permanently disabled if:solely because of your illness or injury you haven’t been able to work in any job for at least three months in a row since you became ill or injured, andyou’re getting treated by and following the advice of a medical practitioner for your illness or injury, andat the end of the three months in a row, your injury or illness means that you’re incapable of ever working in any job that you are suited to based on your previous education, training or experience, or any job that you may reasonably become suited to with further education, training or experience.This will be decided by considering things such as:what re-skilling, training or voluntary work you have done already,any training or re-skilling you reasonably could be expected to do, andany rehabilitation you have done already or any rehabilitation your reasonably could be expected to do | Sickness or injury which has prevented the Insured Person from working in their own occupation for at least 3 consecutive months; andthe 3 month period has ended before the review date on or following the Insured’s 65thbirthday; andthe sickness or injury makes it unlikely that the Insured Person will ever again be able to work in any occupation for which they are reasonably qualified because of education, training or experience. |
| Is Own Occupation TPD available? | No | Yes, with super linking |
| Does TPD definition change if unemployed? | Yes, after 6 months of unemployment.You will be considered totally and permanently disabled if solely because you become ill or injured after your cover starts:you’ll never be able to do at least two of five everyday working activities, without physical help from another person, even with the use of medication and appropriate aids. You must have been unable to do the everyday working activities for at least six months in a row since you became ill or injured, andyou’re getting treated by and following the advice of a medical practitioner for your illness or injury, andbecause you are ill or injured it’s unlikely that you are going to be able to work in any job that you are suited to based on your education, training or experience. | No |
| Partial TPD Benefits? | No | Yes, with super linking |
| Income Protection | Industry Super Fund | Retail Life Insurance |
|---|---|---|
| Available sums insured | With no health checks – $10,000 p/monthWith short form underwriting – $20,000 p/monthWith full underwriting – $30,000 p/month | Up to $60,000 p/month |
| Default Cover | Yes | N/A |
| Waiting periods | 30 or 60 days (60 days is default) | 14, 30, 90, 180, 360 or 720 days depending on policy |
| Benefit periods | 2 years | 2 years, 5 years, to age 65, to age 70 depending on policy |
| Waiting period requirements | You must be totally disabled for at least 14 of the first 19 consecutive days of the waiting period and disabled for the remainder | Totally or partially disabled throughout the waiting period |
| Definition of Total Disability | Unable to perform 1 income producing duty and not working | 3 tier definition – 10 hours, 1 duty or loss of income |
| Partial Disability | Yes | Yes |
| Definition of Pre-disability earrings | Annual remuneration at the time of disability, including: a) fringe benefits through salary sacrifice, b) performance related annual bonuses and commissions, (averaged over the previous three years or the period that you have been receiving these payments, whichever is shorter), and c) overtime payments and shift allowances (averaged over the previous 12 months) |
The Insured Person’s highest average monthly earnings in any consecutive 12 months period in the 36 months immediately preceding the commencement of total disability or partial disability, increased by CPI each review date since that date |
| Offsets | Your monthly Income Protection benefit will be reduced by the amount of income you receive from any one of the following sources:1. any income or commutation of income you receive or are entitled to receive as a result of your illness or injury including:Sick leave paymentsAmounts payable under legislation such as workers compensation, social security benefits (other than Centrelink payments) or motor accident compensationBenefits payable under other income protection policies2. employer super contributions3. income earned from personal exertion while disabled4. any income that, in the opinion of the insurer, you could reasonably be expected to earn in your occupation while disabled | For this purpose, income from other sources includes, but is not limited to, the following:workers or motor accident compensation or payments under common law relating to the sickness or injurypayments from the Insured Person’s employer, partnership or business while being paid an insured benefit, andsick leave payments made to the Insured Person while being paid an insured benefit |
| Exclusions | An insurance benefit will not be paid if an illness or injury is directly or indirectly caused by:intentional self-inflicted injury or infection or suicide attempt, whether sane at the time or notyour service in the armed forces of any country, other than in the Australian Armed Forces Reservenormal pregnancy or childbirth or assisted fertilisation techniques, orwar | We will not pay you a benefit if the sickness or injury giving rise to the claim is caused by:an act of war (whether declared or not)intentional self-inflicted injury (whether sane or insane)normal and uncomplicated pregnancy and childbirth |
| Super linking available? | No | Yes |
| Waiver of premium while on claim | No | Yes |
For more information on whether a group Life Cover policy is right for you or whether you need to upgrade to retail Life Cover contact one of Wealth Smart’s expert advisers.
One of our knowledgeable consultants will be able to help you assess your Life Insurance needs and find the right retail Life Insurance policy for you!
